Credit advice for recent college graduates

Hey, college grad, time to talk credit! Your bright future starts with obtaining, managing and maintaining good credit. This is how lenders and landlords judge how responsible you will be for loan repayments and credit card balances or rent. Want to impress an owner or a future boss? Good credit will. Want to get approved for a good rate on a car loan or home loan? You will need good credit for this. You’ll even need good credit when you sign up for utilities for a new apartment. If your credit is damaged, you risk not being approved or being hit with fees.

Ready to learn how to get good credit? Follow these seven important tips.

1. Take control of your student loans

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You’ve gone to school and now have the degree to prove it, but paying off your student loans can be more complex than just monthly payments.

For most graduates, loans will be a big part of your financial life and can be a big part of your stress going forward. How are you going to make all those student loan repayments? Gather all of your loan information and add up the payment amounts to determine the total you’ll repay each month, starting six months after you graduate. Typically, this amount will also cover any interest you owe.

But watch for announcements from the US Department of Education. Thanks to COVID-19, federal student loan repayments were suspended until August 31, 2022. This meant that loan repayments were suspended and a 0% rate was applied to the loans, so they would not continue to earn interest. And while it doesn’t make a difference if you’ve just graduated or are about to graduate, there’s always the possibility that these arrangements will be extended.

Thirty percent of undergraduate students borrow money from the federal government and the amount they borrow is nearly 93% of student loan debt. With a federal student loan, you have plenty of repayment options. If a standard 10-year repayment plan doesn’t work for you because your total loan amount exceeds your income, you can apply for an income-based repayment plan or a graduated repayment plan, which starts with lower payments which increase every two years. If you’re going through a tough financial time, you can apply for a federal student loan forbearance or deferral, which will delay or reduce your loan repayments for a period of time.

Whenever your student loan payments begin, you’ll want to make room for them in your monthly budget. Paying student loans on time each month is a great way to build your payment history and boost your credit.

2. Create a budget

Person sitting at desk next to laptop while holding credit card and bill.

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Good budgeting can help you keep good control over your expenses.

Now that you know what you’ll be paying back in loans, you can budget to figure out what you can afford for other expenses, says Trent Graham, financial wellness expert at GreenPath Financial Wellness, a national organization. non-profit. A big part of having good credit is not getting into debt in the first place, especially in the form of credit card bills by spending more than you can repay in a timely manner.

With a budget, you’ll want to include income such as paychecks and compare it to all your bills and expenses like housing, transportation, utilities, food, and insurance such as car insurance and insurance. tenants. “Make sure [you] cover the basics first,” says Graham. Then you will know what you can spend on having fun. You do not know where to start ? Using a good budgeting app can ensure you don’t miss a thing.

3. Don’t ask for too many credit cards

If you don’t have a credit card yet, it can be tempting to cover the financial world with your applications, so you’ll hopefully be approved for something. But don’t do that – having too many applications and too many lines of credit at once can hurt your credit score.

Instead, shop smart for your next credit card. You do not know where to start ? Consider these best first credit cards.

4. Use credit cards carefully and pay them off quickly

A good rule of thumb is simply not to spend money that you cannot pay back each month. Credit cards are a convenient way to pay as long as you pay off the balance in full each month, you won’t have big interest charges. Paying even the smallest credit card bills, such as for a monthly streaming service, will help you build a solid payment history, as long as you pay your bills on time.

But avoid using credit cards to add to a meager post-graduation income. Debt can pile up quickly when you are unable to pay the balance in full. “Using credit cards to supplement income can lead to problems,” says Graham. “If you fall into this trap, it’s hard to get out of it unless you make more money.”

5. Pay more than the minimum payment if you can

Person looking at smart phone and credit sitting on sofa.

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Paid After that the minimum on your credit card will get you further than expected.

If you must put expenses on cards, be aware of the balance you will carry and the interest charges. Pay off a credit card balance as soon as possible.

A balance with a high interest rate can be difficult to manage, but paying above the minimum payment makes a big difference. Becky House, director of strategic initiatives at American Financial Solutions, a nonprofit credit counseling, financial education, and debt consolidation agency, shows how important even small payment changes are.

For example, on a debt of $5,000 with an interest rate of 18%, someone making only minimal payments will take more than 13 years to pay off the debt. How is it possible ? As the credit card balance decreases, the card’s minimum payments also decrease, which are set at 3.5% of the remaining balance. So by only paying the (ever decreasing) minimum, it will take well over a decade to get to zero balance. But if the borrower remained stable and continued to pay the value of the first minimum payment, or $175 per month, the card would be paid off in just 3 years and 2 months.

Bottom line: try to pay more than a card’s minimum payment whenever you can and the full balance whenever possible. “If it’s not possible to pay the full balance, pay it off as close to 25% or 30% of the available credit limit as possible,” says House.

6. Don’t skip a credit card payment or close open accounts

It goes without saying, but leaving bills in default will do your credit score a disservice. “Pay all your bills on time,” House says. “A single late payment can have a dramatic impact on a credit score and credit report.”

Worried about missing a payment? Signing up for automatic payments is a great way to go. Set the payment date after a payday so that there is plenty of cash in your checking account.

Also, keep all your credit cards open, even if you’re not using them right now. The length of your credit history impacts your credit score and that old credit card account from a few years ago will help your credit by adding to your credit history.

7. Get to know your credit report

Person holding smart phone with credit score on screen.

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Stay up to date on your current situation with reliable sources like Annualcreditreport.com.

Want to see who you owe and what you owe? Get a free copy of your credit report. You’ll see every student loan you have and every credit card and other credit account you might have, such as a car loan. You’ll see how much you owe and whether the account was paid on time. It’s a good idea to review your credit report at least once a year.

“Leaving college is a great time to review the report and make sure any student loans someone has taken out are being reported correctly,” House says. “Take the time to review all aspects of the report, personal information, other credit information, inquiries, who is viewing the report and make sure everything is correct. Anyone can access a free copy of his credit file on annualcreditreport.com.

Carefully review your credit report. If you find any errors, contact the credit reporting agency and request that they be corrected. This is especially important if someone else’s credit records have gotten mixed up with yours, which can happen to people with similar names and even relatives. Promptly alert the credit reporting agency of this error. You want to make sure your credit report is accurate and only lists your own credit records.

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