8 Things College Graduates Should Know About Credit
After you've earned the credits you need to earn your college degree, a new kind of credit becomes important. This kind of credit will affect you for the rest of your life; it will influence your ability to get certain goods and services before paying for them with the expectation that you'll make payment in the future.
You may already have some experience with credit, particularly if you’ve had cell phone or utility bills or a credit card. But, as you build a life without your parents and away from the college campus, building and protecting your credit becomes much more important.
1. If you haven’t already established a credit history, you might find it hard to rent an apartment, buy a house or car, or even get a credit card. The Catch-22 of credit is that you need credit to get credit but you can’t get credit if you don’t have credit. A good job, higher down payment, or willing cosigners can help you jumpstart your life and begin building a solid credit history.
2. Student loan payments will start in six months for most types of student loans. If you don’t start paying—or make payment arrangements—your credit will be hurt. You get a grace period after you graduate to find a job and get established before your student loan payments kick in. Make sure your lenders have your correct address so your statements will reach you. Try to get an idea of what your payments will be before you have to start making them so you won’t be caught off guard by the payment amount.
Talk to your lender about repayment options that fit your income and expenses.
3. Opening too many credit cards at once is risky, stick to just one or two until you get used to your new job and new living expenses. Being approved for your first credit card can be exhilarating, but don’t get addicted to the feeling. Credit cards come with the risk of debt. When you’re just starting out as a young adult in the real world, you don’t need to add credit card troubles to your list of things to deal with.
4. Payment due dates (generally) are nonnegotiable and missing a due date can hurt your credit score. Your professors may have occasionally let you turn your papers in a day or two late without giving you a penalty, but your creditors aren’t as gracious. You can change some payment due dates to a better time in the month, but not as a payment avoidance tactic. Get used to paying your bills on time because missing them comes with expensive penalties.
5. You have access to a free credit report once a year. Order it annually to keep track of what’s going on in your credit life. Your credit report contains a list of all your credit account. It’s what creditors, lenders, and other businesses use to decide whether to approve your applications. Visit annualcreditreport.com to get access to a credit report from each of the three major credit bureaus each year. Review your credit report to make sure the information on it is accurate and complete. Dispute any errors with the credit bureau to have them removed.
6. Bills your roommate doesn’t pay can hurt your credit score—the number that measures your credit history. If you live with a roommate, take care that any rent and any other bills that have your name on them are paid on time each month. The companies won’t care that you and your roommate have a verbal (or even written) agreement to split the bill. They care about getting paid on time by whomever's name is on the bill.
7. Putting your credit on the line for someone else isn’t smart. If you already have good credit, think twice about co-signing for a friend, relative, or a romantic partner. When you cosign for someone, you’re essentially promising that payments will be made each month even if that means you have to make them. When the other person misses payments, it affects your credit, too. Non-payments can devastate your credit, making it difficult for you when you need to borrow money for yourself. Keep this in mind also if you’ve asked a parent or friend to cosign something with you.
8. Everything you do now affects your credit for years to come. Make wise decisions and you’ll be rewarded with a good credit score. Likewise, bad decisions and credit mistakes will result in a bad credit score. Negative information stays on your credit for seven years. If you make a credit mistake at age 22, it will stay on your credit report until age 29. When you want to get a mortgage or buy a new car, the mistakes you made years ago can affect you. Fortunately, there’s no limit to the amount of time that positive information stays on your credit report.
Aim to keep your credit clean so you won’t run into problems down the road.