5 Ways to Start Building Credit After College
Financial awareness isn't always top of mind for college students, but ultimately, building a credit history is all about how your financial situation comes across to a lender.
May 13, 2021
You know how the old saying goes: “College is the best four years of your life.” But if that were really true, you’d be missing out on that amazing post-graduation stretch when anything is possible and a shower caddy is a thing of the past!
As you embark on this fresh new chapter of your post-college journey, you may be looking for ways to set up a strong financial foundation that helps you achieve your goals and dreams. Building good credit is a great place to start.
If you graduated with little or no credit history, here’s how to build credit after college by assessing your current credit report, understanding and increasing your credit score, and paying down credit card debt on time.
1. Pull Up Your Credit Report
First thing’s first: It’s time to see where you stand with your credit — right here, right now. Financial awareness isn't always top of mind for college students, and building a credit history is all about how your financial situation looks to a lender.
By pulling up a copy of your credit report, you can check to see if your credit file is established, learn the details of your credit history (if there’s any listed) and find out your current credit score. You can access your credit report by visiting any of the three major credit bureaus (Experian©, Equifax® and TransUnion©), or you can go to AnnualCreditReport.com to access it for free.
Another key reason to check your credit report is to be sure there’s no inaccurate information, i.e. false late payments, incorrect loan balances, or fraudulent accounts you never opened. If you do find errors in your credit report, you can file a dispute with the credit bureau and get ahead of anything that hurts your chances of getting approved for credit in the future.
2. Understand 5 Factors That Affect a FICO® Credit Score
Your FICO® Score is a credit score from the Fair Isaac Corporation (FICO) that lets lenders know whether or not you’re a reliable borrower or eligible candidate for a new line of credit. It’s calculated by using specific aspects of the data in your credit report and grouping them into five separate categories:
Your payment history accounts for 35% of your FICO Score, making it the most important factor of the five. And even if you were unsure about how to build credit as a college student, showing the lender that you’ve paid past credit accounts on time limits your risk as a potential borrower and can help you continue to build a healthy credit history.
The amount of credit accounts you owe money on makes up for 30% of your FICO Score. It’s not to say you’re a high risk borrower just because you owe on several accounts, but if you’re using a large portion of your available credit, it could be a sign to lenders that you’re overextended and have a higher likelihood of delinquent payments or defaulting.
Length of Credit History
The length of your credit history accounts for 15% of your FICO Score. If you weren’t busy learning how to build credit in college, a longer credit history means an increase in your credit score. It takes into account the age of your oldest account, your newest account and the average age of your accounts combined, as well as how long certain accounts have been open and how long it’s been since you used some accounts.
Your credit mix makes up 10% of your FICO Score and it assesses your unique array of accounts, whether they are credit cards, loans, retail accounts, mortgage loans, or other debts. It doesn’t expect you to have every type of credit account, it’s just one of the five factors.
How many new lines of credit you have open will account for 10% of your FICO Score. If you open up several credit accounts in a short time frame, especially if you don’t have a long credit history, it can position you as a greater risk to lenders. Applying for multiple credit cards to build credit is not generally the most useful thing when thinking about how to build credit after college.
3. Pay Down Existing Debt
In addition to taking on too much debt too soon, it’s important to pay down the debt you already have, and there are several debt payoff strategies you can use.
The debt avalanche method involves using flexible income from your budget to pay down credit cards with the highest interest rates first, while making minimum payments on the other cards to avoid late fees on your credit report. As you start to lower your credit utilization ratio — the amount of debt you have compared to the amount of available credit you have — your credit score will go up.
4. Start Building a Credit History
Starting from scratch with your credit history can seem like a daunting task, but it doesn’t take too long to build up your credit history, even if you're just learning how to build credit after college. In fact, according to major credit bureau Experian, it takes three to six months to calculate your credit score and start building your credit history.
By taking a few financially strategic steps in the meantime, you can do your best to expedite the credit building process:
Getting a Credit Card
Using credit cards to build credit can move things along faster because of the speed with which card issuers report payment and balance information to the major credit bureaus. Thus, just by making and paying off a few credit card purchases per month, you’ll be building up your credit history and seeing positive changes in your credit report.
Paying Off a Loan
Whether you have existing student loans, a personal loan or another type of installment loan, adding a level of diversity to your credit mix can be an effective way to build your credit from scratch. As with credit cards, making on-time payments will keep boosting your credit score. You can even consider a co-signer if you’re unable to acquire the loan with your current credit status.
Becoming an Authorized User
Another credit-building strategy you could try is to become an authorized user on someone else’s account, like a parent or spouse. It offers you the perks of their good credit and, even though it won’t have the same impact as your own line of credit, it still helps. Make sure the person you're considering has good credit and accounts that are in good standing.
5. Make Your Payments on Time
Since the single most important factor in your credit score is your payment history, it’s essential to get into the healthy financial habit of making payments on time. Just one late payment 30 days past due can linger on your credit report for seven years.
There’s a lot left to accomplish in this amazing post-college life, and it’s much easier to prove the best really is yet to come with a credit history that helps you do the things you always dreamed of. Probably not many college students think about how to build credit while in college, but it's time to start thinking about it when those first post-college paychecks start rolling in.
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