If you’re in college or have recently entered the working world, you know first-hand that your credit score has suddenly become more important than you ever thought it would be. Go to buy a phone, and they will run your credit. Try to rent a nice apartment, and you better have zero flaws on your credit history to get approved. Your credit score will affect every financial move you try to make after college, from small to large purchases. And, if you don’t have an established credit rating, it can be even worse than having poor credit. That’s why all young adults should actively work to establish a great credit score early on. It’s not hard to do; all it takes is a little planning and a few helpful tips. But it won’t happen overnight so you need to get started as soon as possible.
1. Open a Personal Checking and Savings Account
You never thought twice about staying on your mom and dad’s bank account? Well, now it’s time to think again. Even though it’s nice to have access to emergency funds, it’s hugely important to start your own, personal bank account in your name. If you have a job, have all your checks deposited directly into this account, and pay your bills from there, too. Lenders want to know that you have a record of managing money effectively and that you have a regular job. Your bank account records will help make that impression.
2. Sign up for Auto Pay
If you’re paying your own bills (and, hopefully, you are, if you’re just about to graduate), then it’s essential to get them paid in full and on time every month. Late payments will negatively affect your credit score, and credit bureaus do keep track of this to check for financial responsibility, especially for people who have few lines of credit open. To make sure you’re covered, sign up to have all your bills directly sent out from your account every month. This gives you peace of mind and improves your credit.
3. Get a Credit Card
Sounds obvious, but it really depends on how the card is handled. The trick to establishing credit is to make your payments every month without fail. Many people believe the benefit of getting a credit card is so you can make purchases you can’t afford and pay them off gradually. But that is a trap. The true benefit of a credit card is to not have to carry cash around with you. You should get into the habit of paying your card off,  IN FULL, every month right from the start so you don’t develop bad habits. If you do this, there won’t be any interest charges and you will get the use of the banks money until the bill is due.  You should always make sure you have enough money in your account to cover the entire purchase before you run your card. Also, try going for a card with a very low maximum, like a $500 credit card, to keep yourself from charging more than you can afford. If you have absolutely no credit history you may difficulty getting even a low limit card like this. In that case you may be able to get one if you have a parent co-sign for you. Just be sure you are the primary card holder.  Some companies offer Student Credit Cards that have low credit limits and are easier to qualify for. If that doesn’t work, you can get Secured Credit Cards They require you to deposit funds but you will not be drawing against those funds. They simply remain with the card issuer to secure your card. In other words if you deposit $500 you might have a $500 limit. Because you are not drawing against that $500 it is a true credit card. And as long as you make your payments on time it will help improve your credit rating. Fees are higher than regular cards but these cards can help you build your credit rating. Instant Approval Credit Cards may allow you to get approved but once again be very careful to watch the terms they are usually much higher than other cards. You will get the best terms by getting your parents to co-sign for you on Student Credit Cards (if your parents have a good credit rating). Once you have demonstrated that you can handle the payments responsibly you can request a limit increase from the company. For more information about all types of credit cards see Why Get a Credit Card?
4. Finance a Product Purchase
You can also skip interest charges and have more money to go around by financing product purchases, like TVs and couches. You don’t want to take it to the extreme and finance all your purchases, but making low payments on a camera or similar product on a monthly basis will do way more to establish good credit than paying for an item in full. Many retailers offer financing with low or no interest rates for a year or so. If you can pay off the entire item during that time, then you lose nothing by making gradual payments. Just be sure to read the terms very carefully and schedule your payments to have the entire amount paid off at least one month BEFORE the deadline. Some finance companies use this trick to trap you. If you pay even one penny of the total after the last day they charge you interest from the first day. Often the interest rate is extremely high. So be very careful with this one!
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