Build Credit For New Grads

High school graduation is an exciting time in your life: you’re ready to head out into the world as a newly-minted adult, off to college or to join the workforce.

The last thing on your mind might be your credit score, something you’ve probably never worried about before, but it’s never too early to begin building the foundations for financial success. 

However, personal finance can be incredibly confusing, and you may not be sure what exactly you’re meant to be doing with your money beyond the normal stuff, such as paying for your basic needs and opening a savings account.

While these are all essential to creating a healthy financial profile, the other essential component is credit: money that you borrow from lenders with the expectation of paying it off in the future. This can include credit cards, student loans, mortgages, and car loans, all of which have a role in your credit score. 

So how do you build good credit fresh out of high school? Let’s look at some of the most significant ways that you can get your credit history off to a great start.

Open A Credit Building Credit Card

Many young people shy away from credit cards because they hear so many horror stories about others racking up thousands of dollars in debt that they can’t afford to repay.

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However, responsible credit card usage can play a major role in building your score, and one of the best ways to start out is with a credit building credit card. 

Also called a secured credit card, these accounts require a security deposit up front, which will be used to recoup the bank’s losses if you don’t pay your bill.

This allows the bank to offer lines of credit to those with little financial history, as they don’t need to worry so much about if the consumer fails to pay.

These cards raise your credit score faster than other cards, and they will also help you use credit more responsibly as you have collateral down.

When you’re just starting out, your best bet is a card like the secured Varo Believe Card, as they don’t check scores and will accept people with no credit history.

The other reason that this is a good choice is because your credit limit will be the same amount as your security deposit, so you can’t overspend like you might if the bank set the limit.

This is an excellent way to use any graduation gifts you may have received from family and friends!

Only Take Out The Amount Of Student Loans That You Need, And Look For Scholarships To Reduce Your Burden

While it’s not quite clear what’s going to happen with student loan forgiveness at the moment, the loans themselves are here to stay – and it’s easy to take out thousands of dollars more than what you need, which will accrue enormous amounts of interest that you will struggle to repay.

When you apply for financial aid, your servicer will often approve you for a larger amount than what you need for tuition, which is meant to be spent on things like books, transportation, and housing.

However, you should build a budget ahead of time, trying to predict your overall costs per semester, and take out only as much as you will strictly need. 

You should also apply to as many scholarships as you are eligible for; there are many sites, like Cappex, that will let you find and apply for thousands of dollars in scholarships each year.

While this can be rather labor-intensive, it will pay off in the long run, as these don’t need to be paid back.

Also talk to your financial aid advisor about grants and work study opportunities that will help pay your way without taking out loans.

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Don’t Fear Credit, But Do Use It Responsibly

The greatest tip out there is that you don’t need to fear credit if you use it carefully and always have a plan for how to pay it back. 

When you’re buying anything that you will need more than a month to pay off, factor in the interest rate of your credit card into the initial purchase price.

You can calculate how much you’ll pay in interest using online calculators, then add that to the purchase price to understand how much you’ll really be paying for your item. 

Try your best not to carry a balance each month, as those fees can really add up the longer that you don’t pay.

To better achieve this, consider your credit cards like a debit card with a later due date; you still need to cover the cost, but you have a month to do so.

It’s not always possible, of course, but if you get into the habit of paying off small purchases right away, you’ll have more urgency with paying off larger expenses too.

Building credit isn’t always easy, but it will pay off handsomely when you find yourself able to afford your dream lifestyle, all thanks to careful financial management and a lot of hard work.