Steps To Build Credit For New Graduates. High school graduation is an exciting period in your life since you’re about to enter the world as a newly minted adult, headed to college or the workforce. The last thing on your mind may be your credit score, which you’ve probably never given much thought to previously, but it’s never too early to start laying the ground work for financial success.
However, personal finance may be extremely difficult, and you may be unsure of what you’re supposed to be doing with your money aside from the obvious, such as paying for your essential expenses and opening a savings account.
While these are all important components of developing a good financial profile, the other vital component is credit: money borrowed from lenders with the idea of repaying it later. This includes credit cards, student loans, mortgages, and auto loans, all of which affect your credit score.
So, how can you establish good credit after graduating from high school? Let’s take a look at some of the most important strategies to get your credit history off to a good start.
1. Apply For A Credit Building Credit Card
Many young people are wary of credit cards because they have heard so many horror stories about others amassing
thousands of dollars in debt that they are unable to repay. However, prudent credit card usage may play a significant role in improving your credit score, and one of the greatest places to begin is with a credit building credit card.
These accounts, also known as secured credit cards, demand an upfront security deposit that will be used to recoup the bank’s losses if you fail to pay your payment. This permits the bank to give credit lines to folks with minimal financial history because they don’t have to worry about the client failing to pay. These cards will boost your credit score faster than other cards, and because you have collateral, you will be able to utilize credit more responsibly.
When you’re just starting out, a secured card like the Varo Believe Card is your best bet because it doesn’t check credit ratings and will accept those with no credit history.
Another reason this is a good option is that your credit limit will be the same as your security deposit, preventing you from overspending as you might if the bank set the limit. This is a wonderful opportunity to put any graduation presents you received from family and friends to good use!
2. Take Only The Amount Of Student Loans
That You Require, And Look For Scholarships To Help You Reduce Your Debt
While it’s unclear what will happen with student debt forgiveness for the time being, the loans themselves are here to stay and it’s easy to borrow thousands of dollars more than you need, accruing massive sums of interest that you’ll struggle to return. When you apply for financial aid, your servicer will frequently approve you for a higher amount than you require for tuition, which is intended to be used on things like books, transportation, and housing.
However, you should create a budget ahead of time, estimating your total spending per semester, and withdraw
just what you will really need. You should also apply for as many scholarships as you are eligible for; several websites, such as Cappex, allow you to identify and apply for thousands of dollars in scholarships each year.
While this can be time-consuming, it will pay off in the long run because these do not need to be repaid. Also, ask to your financial aid advisor about grants and work study programs that can help you pay your way without taking out loans.
3. Don’t Be Afraid Of Credit, But Use It Sensibly
The most important tip is that you don’t have to be afraid of credit if you use it wisely and always have a plan for repaying it. The interest rate on your credit card should be taken into account before making any purchases that will take longer than a month to pay off.
Using internet calculators, figure out how much interest you’ll pay, then multiply that amount by the purchase price to determine how much you’ll actually pay for the item. Make every effort to avoid carrying a balance each month since the longer you wait to pay, the more money you’ll lose in late fees. To do this more effectively, think of your credit cards as debit cards with a month-long grace period instead of an immediate due date.
Although it’s not always practical, if you develop the habit of paying off little purchases as soon as you receive them, you’ll feel more pressure to do the same with larger spending.
Building credit isn’t always simple, but it will pay off hand somely when you find that smart money management and a lot of effort have enabled you to live the life of your dreams.