Yahoo Finance The New Grad's Guide to Good Credit
Congratulations on your graduation! Your credit score is probably one of the last things on your mind as you start a new chapter of your life, but consider these two facts:
1. An excellent credit score could save you hundreds of dollars a year and hundreds of thousands over the course of your life.
2. Excellent credit is completely attainable -- I myself was able to get a score over 750 by the time I was 22.
Your credit score could make a substantial difference in your life, so here's a quick guide to get you started on the path to good credit:
Start Early
Many credit scoring models use your age of accounts to help determine your score, so it's important to get your credit history started as soon as you can. While this may seem unfair to younger consumers, as they haven't had as much time to age their accounts, there's no need to worry -- it's typically not one of the most important factors. Getting a credit card or loan early may not be the best thing you can do for your credit, but it's certainly one of the easiest.
If you haven't begun building your credit yet, there are a few easy ways you can do so. Secured cards almost guarantee approval, as they're backed by a cash deposit that typically becomes your credit limit. Student cards and retail cards are also usually easier to get than other credit cards, but they often come with low limits and high interest rates. Alternatively, consider asking a credit-savvy family member or friend to add you as an authorized user on one of his or her cards.
The longer you responsibly manage the credit you're granted, the more you demonstrate your creditworthiness to potential lenders, so starting early is a great (and easy) way to excel in this particular credit factor.
Pay Your Bills On Time
Even if you know nothing about credit, this should be a no-brainer. Late payments aren't just serious because you could be charged a hefty fine -- since credit scores are meant to tell lenders how likely you are to repay debts in a timely manner, just one late payment could drastically hurt your credit health.
Because of this, it's vital to pay your bills on time as often as possible. If you're having trouble keeping track of all your accounts, try seeing if your lenders will move your due date to one single day of the month. There are also a variety of ways you can remind yourself to pay your bills, from setting email reminders to using apps or other financial services.
Not having enough money to pay your bills on time each month is a trickier problem to solve, but if you really scrutinize your budget, you should be able to figure out some areas where you can cut back spending. If not, see if you can make some extra money during your free time. Since your on-time payment percentage is typically one of the most important credit scoring factors and late payments can stay on your report for seven years, making each payment on time should be well worth the effort.
Space Out Your Applications
There are a lot of great credit cards out there, and it can be tempting to apply for all of them when you see the sign-up bonuses and rewards you could be earning. However, before you try getting all those cards, keep a few things in mind:
-- Each application for credit typically results in a hard inquiry that can slightly lower your credit score and stay on your report for two years.
-- Many sign-up bonuses require you to spend a certain amount of money, with promotions like "get $100 if you spend $1,000 in the first three months of card ownership." If you weren't going to spend that money in the first place, these bonuses could tempt you to waste your hard-earned money on items you don't want or need.
Unless you really need all the credit you're applying for right away, it's prudent to check your report to see how many hard inquiries you currently have and wait to apply for more credit if necessary.
Don't Max Out Your Cards
You already know that not charging all of the credit you're granted could ease the strain on your wallet. But did you know that it could also be good for your credit? The higher your balances, the more likely you'll be unable to pay off your debt, so your score could be penalized if your credit utilization rate gets too high.
A good rule of thumb is to use no more than 30 percent of your overall credit limit. To do this, try making more than one payment a month, see whether your lender will increase your card's limit or simply swipe your card less.
Monitor Your Credit
Like many of the previously mentioned tips, monitoring your credit can help you in a few different ways. For example, it could help you learn firsthand what actions affect your credit and spur you to keep making healthy financial decisions. Also, regularly checking your credit reports and scores could help you spot and dispute fraudulent charges quickly and maintain your good credit.
The bottom line: Give yourself the graduation gift that will keep on giving -- credit habits that will set you up for success. Habits are hard to break, so if you can incorporate these financial practices while you're still young, you should be able to reap the monetary benefits for the rest of your life.
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