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Letter to New Grads: Let’s Build Your Credit!

May 14, 2014
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Dear New Grads,

Congratulations, you’ve made it! Your four-plus years of hard work have finally paid off and you’re ready to take on the world with diploma in hand. With any luck, you’ll be offered a decent-paying job in your field that pays the bills and challenges you every day — in a good way!

Along with a better income, you’re probably going to want to upgrade your lifestyle a bit. Which is fine, as ramen noodles and 4-year-old futons aren’t exactly conducive to a happy and healthy adult life. However, before you start flaunting your newly found baller status, let’s talk about your credit.

I know, I know. You just finished exams — the last thing you want to do is learn about credit! But I promise you, building and maintaining your credit really isn’t that hard and it will be so worth it.

Why? Well, unless you plan on crashing with your parents until retirement, you’re going to need a healthy credit score at some point. Credit scores determine not only credit terms for loans and credit cards, but also can mean the difference between having and not having a cell phone, an apartment or even a job.

You probably want those things, so follow these simple tips to building a positive credit history and a great credit score.

1. Open a credit account if you haven’t yet … If you don’t have a credit history just yet, the easiest way to start building your credit is by applying for a credit card. Those without any type of credit history may need to start with a secured credit card and then upgrade to an unsecured card. Here are a few secured card options!

2. … but only open one at a time. New credit applications can hurt your credit, especially when your credit history is short. After applying for your first card, wait about a year to open another new account. Start slow — you can apply for more accounts after you’ve built up a decent credit history.

3. Pay your bills on time, every time. The No. 1 thing you can do for your credit is make 100% of your payments on time. Not 99% of your payments on time, 100%. Payment history is the most important aspect of your credit score.

4. Minimum payments? You can do better than that! Unless you’re unable to pay your other bills, you should be paying a lot more than the minimum. You’re a college grad — clearly, you don’t just do the bare minimum.

Ideally, you’ll want to pay off the entire balance of your credit cards each month to avoid accruing interest. And if you think a good rewards card will make up for the interest paid, think again.

5. Get rid of your existing debt. Whether it’s student loans, credit card debt or an auto loan, it’s time to make a plan to wipe out your debt. I know you’re making more money now, but make sure you aren’t spending it all on an upgraded lifestyle.

Buy a real mattress and stock up on veggies and then start aggressively attacking that debt. As your credit utilization ratio goes down, your credit goes up.

6. Understand the magic that is compounding interest. Interest can be awesome or awful, depending on what side of the equation you’re on. If you’re paying off debt slowly, you’re going to pay a ton of interest over the life of your loans. However, if you get any debt paid off quickly and avoid carrying a balance on your new credit card, you can invest and earn interest instead of paying it.

7. Be patient. You spent years earning your degree, and you’ll need to spend years building up a positive credit history. By making all of your payments on time, paying down any existing debt and not applying for too many credit accounts at once, your credit score will flourish.

That said, it will take time. Be patient and enjoy the climb towards 850. I assure you it will be much easier than the climb to graduation day.

8. Pull your credit reports annually to check for errors. Credit reporting bureaus aren’t infallible, and you should be pulling reports from all three reporting agencies — Experian, Equifax and TransUnion — each year to check for discrepancies. Don’t worry, it’s free! Just go to to get your reports.

Congrats again, new grads! Now that your education has been extended to how to build good credit, you’ll be unstoppable.


Your Credit-Savvy Friends at NerdWallet

Graduation caps in the air image via Shutterstock