Financial experts recommend young people start building their credit during college so they can set themselves up for future financial success. But if you've recently graduated and have no credit history to your name, there are still plenty of ways you can establish credit.
Graduating from college brings a lot of new responsibilities, such as finding a job and potentially renting an apartment. You might not realize it, but your credit score plays a role in nearly every one of these major milestones, which is why it's important to start building your credit history early.
You can go the traditional route of opening a credit card, or consider alternative options that may be less risky, such as becoming an authorized user on a family member's card.
Below, CNBC Select explains what you should do if you graduate college with no credit history.
Know where you stand
If you haven't opened a credit card by the time you graduate college, that doesn't necessarily mean you don't have a credit history. There are many things that can affect your credit score, such as making timely payments on your student loans and/or cell phone payment plans. Both are considered installment loans on your credit report, to be repaid over a fixed time period.
To learn what's included in your history, review your credit report and check your credit score to see if your credit file is established. You can check your credit reports with Experian, Equifax and TransUnion for free every week until April 2021.
If you graduate with student loans, you typically have a six-month grace period before you have to start repayment. After you begin repayment, it may take a few months for the student loans to appear on your credit report. But if you've graduated from grad school, for instance, and are already making payments on undergraduate student loans, your balance and payment history should already show up.
Payment history is the most important factor of your credit score, so once you know exactly what kind of loans are on your credit report, reach out to the lenders to establish a payment plan to keep you on track.
Become an authorized user on someone else's credit card
Perhaps the simplest way to build credit with no personal liability is to become an authorized user on someone else's credit card. This may be a parent, close family member or friend who responsibly manages their credit. It's important to ask someone who has good or excellent credit, so you can piggyback off their positive actions. For instance, if they consistently pay on time and maintain a low balance, that information will appear on your credit file, too, which helps your credit score.
By becoming an authorized user, you'll be able to use the primary cardholder's credit card and establish credit without any liability for making payments on the account. That said, you should set clear guidelines with the cardholder over how much you can spend on the card and how you'll repay them. If you overspend and they're unable to make the payment on-time, both of your credit scores will be damaged.
Before someone adds you as an authorized user, check to see if there's an annual fee for adding additional cards. Most no annual fee cards, such as the Citi® Double Cash Card, don't charge authorized user fees, while some premium cards do (see rates and fees). Check out the best annual fee cards that don't charge authorized user fees, such as the American Express® Gold Card ($250 for the primary cardholder, $0 for up to five authorized users) Terms apply. See rates and fees. Both of these cards require excellent credit to be approved.
Consider cards that don't require a credit history
Another way to build credit with little to no credit history is to open a secured card. These cards act just like traditional, unsecured cards — except you're required to submit a security deposit, typically $200, to receive a credit limit equal to the amount you deposit.
However, the Capital One Platinum Secured Credit Card, gives eligible cardholders the opportunity to qualify for a lower $49 or $99 deposit and still receive a $200 credit limit. If you don't qualify, the minimum deposit is $200.
Recent grads who don't want to deposit money to receive a credit limit can consider alternative cards that don't require a credit history, such as the Petal® 2 "Cash Back, No Fees" Visa® Credit Card. While no credit history is required for this card, if you do have a credit history, that will be taken into consideration.
For rates and fees of the American Express® Gold Card, click here.
Petal 2 Visa Credit Card issued by WebBank.
