How Recent College Graduates Can Establish Good Credit

March 24, 2023

March is National Credit Education Month, a time dedicated to educating and encouraging Americans to clean up their finances and start building good credit.

Credit scores are often the deciding factor on many important milestones in life, like purchasing a home, vehicle or taking out a personal loan to start a business. Most financial institutions rely on a FICO® Credit Score, a three-digit number comprised of previous credit history and credit utilization to help lenders determine how likely you are to repay a loan.

For recent college graduates, credit scores can sometimes feel like a “Catch-22,” where they are unable to start establishing credit because they do not already have an existing credit score. With the end of the spring semester rapidly approaching, here are a few steps soon-to-be or new graduates can take to lay the foundation for a path to good credit and set themselves up for financial success:

Become an authorized user on a credit card

Whether it be a parent/guardian, sibling or extended family member, becoming an authorized user on someone else’s credit card is a great method to establish credit. When you become an authorized user on a credit card, you can reap some of the primary cardholder’s positive credit actions without being liable for making payments on the account. For this reason, it’s important to become an authorized user on an account with someone who has a good credit score and is in good financial standing. It is also vital to set clear guidelines with the cardholder over how much you can spend on the card and how you’ll repay them. If you overspend and they’re unable to make the payment on time, both of your credit scores will be damaged.

If you are unable to become an authorized user on someone else’s credit card, investigate cards that don’t require a previous credit history. These are often secured credit cards, which typically require you to make a minimum $200 deposit to secure a credit line equal to your deposit amount.

Make payments on time 

When you pay bills on time, it positively impacts your credit score. According to Bankrate, payment history contributes to 35% of your credit score calculation. Paying your bills on time every month also proves you know how to responsibly use credit.

Pay down student debt

While the water is still murky on whether student loan debt will be forgiven, now is the perfect time to start paying down loans. Since interest rates on student loans are still in a period of forbearance, you can pay down debt faster because these accounts are not accruing interest. Although the amount of your payment will not change, recent graduates who continue to pay off student loans will ultimately save money by avoiding interest.

Maintain smart financial habits

The key to good credit is maintaining smart financial habits that enable your credit score to increase. Ways to maintain positive financial habits include not overspending, paying off the full balance of your credit card every month and consulting with a financial advisor to help you budget and determine a path to establishing good credit that best suits your financial situation. 

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