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 as it will influence your ability to obtain certain goods and services before paying for them in full.
You may already have some experience with credit, particularly if you’ve had to pay cell phone or utility bills. But as you create a life for yourself without your parents and away from the college campus, building and protecting your credit becomes much more important. Here are some important tips to remember as you do those things.
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. Consequently, if you haven’t already established a credit history, you might find it hard to rent an apartment or even get a credit card. Having a job that brings in a good income and making a larger down payment on a big purchase, such as a car, makes lenders more likely to give you credit.
If you’re having trouble getting a credit card, don't ask your parents to co-sign the application unless you're absolutely sure you can make the payments. If you miss payments, your parents will be required to make them for you, and their credit score—the number that's used to measure creditworthiness—will be harmed.
Find a Secured Card
A better option is to apply for a secured credit card. To get that type of credit card, you'll have to make an upfront security deposit and you'll likely pay annual and application fees.
Be sure to read thoroughly the application for any credit card, secured or otherwise. Make sure the terms and interest rates are reasonable and keep in mind that the annual percentage rate for someone with a low credit score or minimal credit history is often above 20%.
Pay It All
If you can swing it, pay the full amount owed on your credit card statement every month. Paying only the minimum amount or some other lesser amount will result in you shelling out far more than the retail price for the things you bought. You'll incur interest charges on the outstanding balance, making that expensive item you purchased even more costly over time.
Avoid Missed-Payment Penalties
If you miss a payment, you'll not only owe interest on your outstanding balance, you also may get charged a late fee, and your interest rate could be increased. To help you avoid a missed payment, set up reminders through your credit card company or timed messages in your calendar.
Skip the Roommate Woes
Bills your roommate doesn’t pay can hurt your credit score if the bills are in your name. If you can manage it, you're better off paying those bills yourself and getting your roommate to pay you back for their share rather than rely on them to make the payment to the utility or property management company.
Prepare for Student Loan Payments
For most types of student loans, the first payment will come due six months after graduation. If you don’t start paying—or arrange to delay making payments—your credit will be hurt.
Limit Your Number of Cards
You should limit the number of card accounts you open for two reasons. The first is that the more cards you have, the greater the chance you'll run up balances you can't pay off each month.
The second is that every time you fill out an application, the prospective card issuer has to review your credit report. Too many reviews of your credit report can result in a modest lowering of your credit score for about a year.
Request a Free Report
You're entitled to a free credit report once every 12 months from each of the three major companies that provide them: Equifax, Experian, and TransUnion. Take advantage of that by going to Annual Credit Report.com and requesting the reports.
Review your reports carefully to make sure the information in them is accurate and complete. If you see any errors, ask the company to remedy them right away.
Avoid a Seven-Year Mistake
Credit mistakes such as missed payments can affect your credit score for seven years. Fortunately, there’s no limit to the amount of time that positive information stays on your credit report.