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Establishing Credit

How to Build Credit as a New Graduate

Graduation is a joyous time, and the last thing you probably want to think about is your credit. But once you're done celebrating your new milestone, it might be time to turn your attention to tackling another one: building your credit.

Why? Depending on what you do after graduation, there is a good chance someone will ask to check your credit. Whether you're looking to buy a new car or want to get approved for an apartment, your credit scores are something you probably will become familiar with as a young professional.

Credit scores aren't anything scary. In fact, if you know the right things to do, you might find that credit scores can work in your favor and open up a new world of financial opportunities you never knew existed. And while you'll work toward having a high score, keep in mind that as time goes on, you'll have multiple credit scores. The bottom line? The same good credit habits boost all your scores.

If you're looking to build credit as a new graduate and see where a good score can lead you, here are five tips you can use to jumpstart the process and be on the way to achieving a top credit score—and greater financial opportunity:

1. Open a Credit Card

Whether you already have one or not, credit cards are one of the best ways to build credit. Payments you make toward your credit card bill get reported to the three major credit bureaus (Experian, TransUnion and Equifax) and help build your positive payment history—which is the most important factor in calculating your credit scores. Credit cards can also help your utilization ratio, which is another major aspect of your score.

2. Never Pay Late or Miss Payments

As mentioned, payment history is the most important aspect of your credit score, and even one late or missed payment can have a negative impact on your score. It is crucial you do everything you can to make all your payments on time. Doing so can help your score grow over time.

3. Don't Max Out Your Cards

It may be tempting to spend once you get your first credit cards, but maxing out your cards can cause your credit utilization ratio—or amount of available credit you're using—to skyrocket. Your utilization ratio is calculated by dividing the total of all your credit card balances by the total of all your credit limits. The higher your balances, the higher your utilization rate. It's recommended to keep your utilization rate under 30%, and under 10% for top scores.

4. Get a Credit-Builder Loan

Credit-builder loans serve really only one purpose: Build your credit. With one of these loans, the lender will set aside the amount you borrow in a savings account, and you'll make monthly payments toward it until your borrowed amount is paid off. At the end you will get the loan balance the lender set aside. The benefit of this is that the lender will report your positive payment history to the credit bureaus, which will in turn help establish or improve your credit. Make sure to read all the terms of your agreement when getting this type of loan, as they vary from lender to lender.

5. Check Your Credit Reports and Scores

Even if you're relatively new to credit, there's a chance there could be inaccurate information in your credit reports that's bringing your scores down. Get a free copy of your credit report from Experian to find out what's in your credit file. If there is anything inaccurate, file a dispute as soon as possible. You can also check your FICO® credit score—the most commonly used scores by lenders—to see where it stands.


Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.

*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.

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