With graduation season right around the corner, the class of 2021 is gearing up for what their lives will look like post-college.
As they prepare to enter the workforce, this period is a significant time marking the start of their careers. For new grads, it's also an opportune moment to make sure they start off on the right financial foot. The money moves you make in your younger years can have a huge impact on what your personal finances look like for years to come.
For grads-to-be, here are two things you should do with your money to help you build a strong financial foundation.
Spend your money wisely using a starter credit card
The purpose of a starter credit card? To help you build credit.
Your credit history — or the length of time you've had credit — makes up 15% of your credit score. So, the earlier you begin building credit, the better.
A good credit score will help you qualify for an apartment, as well as get the lowest interest rates on a new car loan or a future mortgage.
Recent grads who have a very short credit history (or none at all) should consider opening a starter credit card, also known as a secured credit card. Similar to using a traditional — or unsecured — credit card, a secured card allows you to charge purchases against your credit limit and then you pay your balance off in full each month when your bill arrives.
The big difference between secured and unsecured cards, however, is that the former typically requires cardholders to make a security deposit upfront (usually $200) that is equivalent to their credit limit. This deposit acts as a form of collateral in case the cardholder doesn't pay their bill each month, which is why they're great for beginners as they learn how to use credit responsibly.
Below are Select's three top-rated credit card picks for recent college grads:
- Best card for no credit: Petal® 2 "Cash Back, No Fees" Visa® Credit Card
- Best card for bad credit: Capital One Platinum Secured Credit Card (see rates and fees)
- Best card for fair and average credit: Capital One QuicksilverOne Cash Rewards Credit Card (see rates and fees)
Petal® 2 "Cash Back, No Fees" Visa® Credit Card
Rewards
1% cash back on eligible purchases right away and up to 1.5% cash back on eligible purchases after making 12 on-time monthly payments; 2% to 10% cash back at select merchants
Welcome bonus
None
Annual fee
$0
Intro APR
None
Regular APR
18.24% - 32.24% variable
Balance transfer fee
N/A
Foreign transaction fee
None
Credit needed
Fair, Good, No Credit
Terms apply.
Capital One Platinum Secured Credit Card
Rewards
None
Welcome bonus
No current offer
Annual fee
$0
Intro APR
N/A for purchases and balance transfers
Regular APR
29.99% variable
Balance transfer fee
$0 at the Transfer APR, 4% of the amount of each transferred balance that posts to your account at a promotional APR that Capital One may offer to you
Foreign transaction fee
None
Credit needed
No credit history
See rates and fees. Terms apply.
Capital One QuicksilverOne Cash Rewards Credit Card
Rewards
Unlimited 1.5% cash back on every purchase, up to 6 months of complimentary Uber One membership statement credits through 11/14/2024
Welcome bonus
None
Annual fee
$39
Intro APR
None
Regular APR
29.99% variable
Balance transfer fee
$0 at the Transfer APR, 4% of the amount of each transferred balance that posts to your account at a promotional APR that Capital One may offer to you
Foreign transaction fee
None
Credit needed
Average, Fair, or Limited
See rates and fees. Terms apply.
Before applying for any credit cards, check your credit score for free using any of these below resources accessible to anyone:
- CreditWise® from Capital One: Free VantageScore from TransUnion
- Chase Credit Journey: Free VantageScore from TransUnion
- Discover Credit Scorecard: Free FICO Score from Experian (only available to Discover cardholders)
Student loans are a type of installment credit (similar to car loans and mortgages), which means they show up on your credit report. The good news is that paying your bill on time each month will help your credit since your payment history is the most important factor in determining your score.
Graduates with student loans typically have a six-month grace period before they have to start repayment. After you begin paying your student loans, it may take a few months for them to appear on your credit report. You can pull your credit report for free from AnnualCreditReport.com to see your student loan balance and monthly payments so you know where you stand.
Save your money in a retirement account
Yes, it's never too early to start saving for your nonworking years.
For recent college grads who score a job that offers a 401(k) plan with matching contributions, make sure you prioritize putting your money toward it, says Brian Walsh Jr., Pennsylvania-based senior wealth advisor at Walsh & Nicholson Financial Group. Otherwise, that's free money you're leaving on the table. If you can't afford to meet the match, work your way toward it each year by upping your contribution by 1%.
Most companies offer two types of 401(k) options: pre-tax and post-tax. "For someone just graduating college, chances are you're in a very low tax bracket and should take advantage of a post-tax or Roth 401(k)," Walsh says. "This will allow you to pay tax on contributions today at lower rates, rather than at higher rates in the future." Contributing as much as you can to a Roth 401(k) now means paying less in taxes in retirement.
For those recent grads whose first job doesn't offer a 401(k) plan or a post-tax option in your 401(k), Walsh recommends opening your own Roth IRA account to ensure you are putting away a portion of your paycheck for retirement and getting the same tax benefits.
Petal 2 Visa Credit Card issued by WebBank.
