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As you graduate from college, you're probably laser-focused on moving and finding a job. Your credit report is likely the last thing you're thinking about, but this is actually the perfect time to start building your credit.
Here's why: Your credit report can affect everything from your employment to your housing (yes, employers and landlords often run credit checks), and if you ever need a credit card, auto loan or mortgage, your credit will be a key part of that decision. So it's important to get started as soon as you can.
If you're brand new to the world of credit, first make sure you understand how credit works. Then try these strategies to start building a strong credit history.
Know Your Credit Score
Before you start making efforts to build your credit, it's helpful to know where you currently stand: one, because knowing your credit profile gives you a better sense of what types of credit products you might be able to currently qualify for; and two, it lets you know your starting point so you can track your progress as your credit scores increase. You can get a free Experian credit report and credit score to find out what kind of shape your credit file is in now, and so you can check it periodically to see how your efforts are paying off.
Start Paying Off Your Student Loans
If you're like millions of other U.S. college graduates, you're leaving school with student loans. In the first quarter of 2019, Americans carried, on average, $35,359 per borrower in student loan debt, according to Experian data.
No debt? Lucky you—move on to the next section. If you do have them, paying off your student loans can actually help establish credit history since your credit report reflects all of your debts and repayments. Just make sure you pay them back on time so your credit report has positive marks, not negative.
Maintain Smart Financial Habits
On that note, it's important to be aware of what factors help and hurt your credit. While making on-time payments to your student loans or other forms of debt shows responsible behavior and can help boost your credit scores, making late payments or missing payments altogether can tank it.
Your credit utilization ratio, which indicates how much of your available credit you're using, is another important factor in your credit score. Creditors view it as a negative if you use more than 30% of your available credit. This means if you take out credit cards, don't charge up all of your available credit lines, and definitely don't max them out. So, for example, if your credit limit is $1,000, it's ideal to keep your balance below $300 at all times. For the best credit scores, keep your utilization below 10%, or $100 in this example.
Become an Authorized User
If your parent or another trusted adult has solid credit, you can ask them to add you to one of their credit cards as an authorized user to jumpstart your credit history. When you're an authorized user, you're essentially a secondary account holder on the primary user's account. While you'll get your own card with your name on it, it's linked to the primary cardholder's account, and it's their responsibility to pay the bill. Because your name is on the account, it will likely show up on your credit report. Be aware that not all credit bureaus report activity from authorized users, so it's optimal to have your own credit card. But if you can't qualify for one, this is a great place to start.
If the primary cardholder is savvy with credit—for example, the account has been open awhile, they have a good repayment history and they maintain a low credit utilization ratio—and the account shows up on your credit report, it can help boost your credit. On the flip side, if the primary cardholder doesn't pay their credit card bill on time, it can reflect poorly on your credit, so make sure you trust the person. Also, assuming the primary cardholder is fine with you using the card, be sure you don't do anything irresponsible with it, since it will harm their credit.
Apply for a Credit Card
Keep the momentum going by applying for your own credit card account, which is one of the best ways to build credit. Unlike being an authorized user, having your own card gives you full autonomy over the account, and you don't have to worry about anyone else's behavior affecting your credit.
When you're still working to establish your credit history, you might not be able to qualify for a traditional credit card. In that case, you could start with a secured credit card. With this type of credit card, you have to put down a deposit equivalent to your credit limit, and your credit limit will probably be low. But using this card responsibly will help you establish credit and qualify for a regular credit card in time. Some issuers will even automatically convert your secured card to a regular card once you've paid your bills on time for a certain number of months.
Consider a Credit-Builder Loan
If you aren't interested in credit cards, or you just want to build your credit history faster, another tactic is to obtain a credit-builder loan. This isn't a traditional loan; rather than giving you a lump sum, a lender instead puts a balance in a savings account—usually anywhere from $300 to $1,000—that you can't access upfront.
You make payments over a set time period, which is typically anywhere from six to 24 months. These payments are reported to the credit bureaus, so when you make timely payments, it helps you establish a positive credit history. Once you've paid the full amount, you get access to the money, and some lenders also return a portion of interest to you. This financial product helps you build credit while also building savings at the same time.
Building Credit Is Worth the Effort
It takes some effort to establish a positive credit history after college, but if you follow these tips, you'll be off to a great start. Keep your eyes peeled for other ways to build your credit along the way, such as with Experian Boost®ø, which lets you use your cell phone and utility payments contribute to your credit score.
Building a strong credit history at a young age will help you tremendously since employers and landlords typically review credit. It'll also make it easier to obtain an auto loan and mortgage later in life, so get started now. Your future self will thank you!