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I Just Graduated College. How Do I Start Building Credit?

Credit Score, Personal Finance
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Congratulations! You have successfully graduated from college! All that hard work has resulted in a cap, a gown, a diploma and now … fiscal responsibility. Of all the things you’ll need to accomplish after college, the building of a great credit score is one of the most important and will serve you well throughout life.

According to Fair Isaac Co., your FICO score is based on the following: payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%), and type of credit (10%). Its competitor, VantageScore, uses the same criteria, though in slightly different proportions. So it stands to reason that activities that involve these criteria are the activities you’ll want to focus on.

  1. Apply for a credit card. As a recent grad, you’ll be inundated with credit card offers. Use our tools at NerdWallet to determine which card is best for you. Begin charging expenses (while noting if certain charges earn bonuses). I recommend keeping a budget as a basic financial tool anyway, so keep track of how much you put on your card. It’s easy to “just charge it” and suddenly find you have a balance you can’t afford to pay off.
  2. Pay off your balance in full each month. This is a habit you should form right from the beginning, by never charging more than you know you can pay each month. If you overspend and can’t pay in full, you’ll start to accrue interest. For first-time cardholders, interest rates can be very high. Make yourself happy by avoiding paying interest. It also helps your credit score.
  3. Pay off your balance on time, every time. Remember, 35% of your credit score is based on payment history. Do whatever it takes to remind yourself of your card’s payment due date. One of the easiest ways to make sure you don’t miss that date is if your credit card company allows you to make automated payments from your bank account. This permits the card company to reach into your bank account on the same day each month. Just make sure that your bank account has enough money in it, so you don’t get overdrawn. Late payments are a big negative mark on your credit, so this task is critical.
  4. Don’t over-apply for credit. The more times your credit report is examined (“pulled”) by a creditor, the lower your score. So be picky, especially if you know you’ll need to get a car loan or credit from a furniture or appliance store. Type of credit is also a factor, so having cards and a couple of loans helps your score.
  5. Check your credit score. Federal law requires that each of the three major credit bureaus provide you with a free credit report each year. Check in on your credit score at least twice a year, or even quarterly. It’s rewarding to see your credit score creep up as you behave responsibly.

The overriding advice here is to be diligent and responsible. Keep a budget. Monitor your expenses. Every Sunday night, check your bank and card balances online to make sure everything is in order. Awareness is the first rule of financial responsibility.

Woman holding credit card. Image via Shutterstock