For college graduates the future is full of new possibilities and, along with it, some financial milestones — a new career, a salary, a move to a new place and maybe even a new car. But this thrilling new turning point can also be challenging if you have minimal credit history.
That's because lenders, insurers, employers and others rely on credit history to assess how individuals manage their financial responsibilities. While having no credit is better than fixing bad credit, it can still prohibit you from securing a loan for large purchases, getting a good rate on car insurance or qualifying for utility services such as electricity, gas, cable or water.
Credit scores, the three-digit score based on your credit history, typically range from 300–850. Any score between 670 and 680 is typically considered good, and that helps you land lower rates on loans and insurance. The higher your credit score, the more likely you are to qualify for more and better offers.
Typically, recent graduates have some credit history based on a student loan or credit card, but if you are among those who need to build up some credit, here are some tips to get there fast.
Opening a credit card is one of the fastest ways to build credit, as long as you make your payments on time; even one late payment could plunge a score by 100 points or more.
Once you have your chosen credit card, register your online account as soon as possible to keep track of your balance and to turn on notifications to alert when bills are coming due so you are never late on a payment.
Although there are thousands of cards to pick from, a secured credit card will provide those with no credit history the best chance of qualifying. A secured card is similar to a traditional credit card in that it extends credit, charges interest and may even offer rewards, but a secured card requires you to make a deposit (usually around $200) and that becomes your credit limit. A higher credit limit will require a higher deposit.
"It is important to get in the habit of paying off your card each month. If you cannot pay off your card, get rid of it, says Doug Boneparth, a CNBC contributor and president of Bone Fide Wealth.
If you're looking to build credit, becoming an authorized user on someone else's credit card is a great option. To become an authorized user, the primary account holder just requests to add your name to their credit card account, giving you authorization to use it, and you'll receive a credit card tied to the account. It's relatively low risk, unless the primary cardholder doesn't pay on time. Then it will adversely affect your credit.
Authorized users can make charges, but the primary card holder has complete liability and is responsible for making payments, redeeming rewards and requesting credit limit increases.
While it's certainly not a substitute for building up your own credit history, it may be a good way to give your credit a nice boost as you're getting started.
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Understanding your cash flow is crucial to building credit history, says Boneparth. "If you don't understand your cash flow, you could put yourself at risk of overspending." Your cash flow is the difference between the money you earn and your expenses.
Credit experts advise keeping revolving debt below 30% of your available credit so that your utilization rate doesn't hurt your credit score.
If you're splitting expenses like cable, electric and water, with roommates or friends, make sure you are the guarantor on those bills if you want those to count toward your credit history. But be sure to have an upfront conversation with your roommates first: Figure out the details of who is responsible for what, when the bills are due and how the expenses will be split so that you aren't in for any surprises down the road.
Also, be careful when using peer-to-peer payment apps. While these money transfer apps — like Venmo, PayPal and Cash App — may make splitting bills with friends and family painless, they also come with hidden processing fees.
Before you apply for a new credit card, personal loan or mortgage, it's important to know your score, since it will give you insight into what products you may qualify for and what interest rates to expect.
Errors often pop up on credit reports, so Boneparth suggests getting a copy of your report at least once a year, especially as fixing mistakes can be time-consuming. You might find someone else's information in your report by mistake or find accounts that don't belong to you.
Knowing your score will also give you insight into what products you may qualify for and what interest rates to expect before you apply for a loan.
These days, checking your score and accessing your credit report is easier than ever. You can get it online at AnnualCreditReport.com or by phone at 1-877-322-8228. In addition, most credit card issuers provide free credit score access to their cardholders.
Here are some free credit score resources that you can access whether you're a cardholder or not:
- CreditWise from Capital One: Free VantageScore from TransUnion
- Chase Credit Journey: Free VantageScore from TransUnion
- Discover Credit Scorecard: Free FICO Score from Experian
If you find an error, you should immediately report it to the three credit reporting agencies: Equifax, Experian and TransUnion.
These companies have all experienced security breaches in the past. Checking regularly can prevent identity theft.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.