There’s a lot to figure out after graduating from college.
In addition to landing a job and finding a place to live, building your credit score is one of the most important things you can do to start down the path of financial success.
The three-digit number represents your credit risk and impacts whether or not you can get a loan or credit card, as well as the interest you’ll pay.
“There are few things in life that are more expensive than crummy credit,” said Matt Schulz, chief credit analyst at LendingTree.
“It can cost you thousands of dollars over the years in terms of higher rates on mortgages and credit cards,” he added. “It can even keep you from getting that apartment you apply for.”
Credit scores range from 300 to 850. A good score is 670 to 739, very good is 740 to 799, and 800 and up is considered excellent, according to FICO, a leading credit scoring company.
Young adults often don’t have a credit score, unless they already have a credit account. Here’s how to get started.
Open a secured credit card
A secured credit card is similar to a regular credit card. You make purchases and make a payment when the bill comes. If you don’t pay off the balance, you’ll be charged interest.
The difference is you make a deposit when you open the card. That becomes your credit limit. This way, the bank is covered if you don’t pay your bill and you can start building credit in your own name.
“It is a way to minimize the risk for everybody and to get a credit card in your name without needing assistance from your parents or anybody else,” Schulz said.
Become an authorized user
If your parents have good credit and are willing to add you to their existing credit card, you can become an authorized user on that account.
Everyone should talk about the risks involved and make sure boundaries are set so there are no misunderstandings, Schulz advises.
Get your own credit card
If you are able to get your own credit card, keep your expectations in check, said Ted Rossman, senior industry analyst at CreditCards.com.
Don’t focus on rewards at this stage, he advises.
“You can overdo it, ” he said. “Some people get in over their heads.”
Instead, start with the basics, such as the best interest rate you can get. Also, look for a card that doesn’t charge an annual fee.
Pay bills on time
There is nothing more important in building credit than paying your bills on time, Schulz said.
Enrolling in autopay can help you stay on track. You can also set a reminder every month in your calendar. Credit card issuers also offer help, including text alerts that a payment is due.
Keep debt low
If you can’t pay off your balance in full every month, at least try to keep your debt low.
Those with the best credit scores keep their debt below 10% of their credit limit, Rossman said. In general, try to stay below 30%. For instance, if you have a $5,000 credit limit, that means keeping your debt under $1,500.
Consider score-building alternatives
A credit builder loan, which you’ll pay for in installments and receive money in the end, also helps boost your score, as long as you make your payments on time.
Then there are alternatives that allow you to count additional bills towards your score. Experian Boost can bring up your score on credit reporting agency Experian by counting phone, utility and streaming service bills, while eCredable Lift reports utility and phone payments to TransUnion. Perch allows you to boost your score with recurring expenses such as subscription services and rent.
The best option to build credit depends on your specific circumstances.
The biggest boost would come from being an authorized user on a parent’s account, Schulz said. However, he thinks it is most important to establish credit with your own name and account.
“There is value in that, even just psychologically, for new graduates who are getting out on their own and having something that they can use to grow into adulthood.”
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.