How you can establish credit as a new grad
Congratulations, you graduated! Years of hard work have paid off, and now you’re ready to take the next step and begin your career. But as you move into this next phase of your life, many of your goals likely include a need for credit; buying your first house, or getting a car are often goals that will mean you’ll need to borrow money. And as a result, it’s more important than ever to start establishing good credit.
As a new graduate with a new graduate salary, it can be difficult and daunting to establish your credit, especially because many places aren’t even willing to give you credit in the first place.
Let’s look at some of the ways that you can get and establish credit as a new graduate.
If you find yourself unable to get a traditional credit card, many companies will offer you the option of a secured credit card. A secured credit card is when a lender asks you to deposit a sum of money into a savings account in order to take out a credit card. They have access to this deposit if you don’t pay the credit card off; as you show positive payment behaviour and build your credit, they will release the money and offer you an unsecured credit card. This gives you the chance to build your credit with no risk to the lender.
Make sure all bills are paid on time
This seems obvious, but it’s important to remember. It’s not just credit card companies that report to the credit bureau anymore. In fact, missing payments on things like a cell phone or utilities can really hurt your credit score, and a poor credit history can take you a lot of work to come back from. If you find yourself in a position where you can’t pay your bills in full on time, call the company to discuss what you can do; even a portion of the bill is better than nothing, and they’ll often do what they can to work with you.
Be smart about the credit you use
You may find that you need to take on some debt in order to get yourself established. This may include expenses like furniture for a new apartment, or maybe even new clothes for your first professional job. While using credit for these purchases can be unavoidable, it’s still important to be smart: If you’re approved for $1,000 there’s no reason why you have to spend it all.
When you’re making credit decisions, you should think about credit like any other monthly bill. Think about what a reasonable amount is for you to pay towards your debts every month, and tailor your choices accordingly. And on months that you can, pay extra towards your debt to whittle it away faster.
Ask for help
If you’re unable to get a credit card or some form of credit on your own, and you don’t have the means or ability to get a secured card, you may want to think about asking someone you trust for help. A co-signer can often help you to get a credit card with a low limit to help get your credit started. However, regardless of who you ask, make sure that they understand all of the rules and legalities or becoming a co-signer, as they are legally responsible if you default on payments.
Establishing your credit as a new grad may seem daunting, and like a big task, but as you can see, small steps taken at the right time can pave the way for credit success in the future.