In Tips & Advice

Everything College Grads Need to Know About Building Credit

College graduation is a milestone achievement and a stepping stone to your future. Now that you (or a member of your family) have graduated, what’s next? While you’re preparing to launch your career, building credit may not be something that’s on your priority list, but it should be. Here’s why.

Establishing a solid credit history is vital for many reasons. Not only will your credit help you qualify for a home mortgage or auto loan, but having a good credit history can help you secure an apartment to lease and it can even have an impact on future jobs. That’s right. Even employers may request a modified version of a job candidate’s credit report. (While prospective employers cannot see your credit score, they will have access to credit insight that may signal a risk of theft or fraud, such as late payments and excessive debt.)

So how do you build your credit? Here’s a step-by-step guide to get you on your way to establishing your credit history.

Find out where you stand. Just like you keep tabs on the balance in your bank account, it’s always wise to know your credit score and keep an eye out for any errors or inaccuracies on your credit report. You may request one free copy of your credit report every year from each of the three credit bureaus: TransUnion, Equifax and Experian. Get your free credit report at You can also track your score and major changes to your credit on the free website, Credit Karma. Getting your free credit report from the credit bureaus and tracking your score on Credit Karma will not negatively affect your credit score.

Start building a credit history. One of the factors that affects your credit score is credit history, or how long you’ve had open credit accounts. The longer your credit history, the better. If you haven’t already, now is the time to start building your credit history. The easiest way to do this is by opening a credit card account. Without a credit card, the system that assigns each individual a three-digit credit score has no way of determining your creditworthiness. Without a credit history, you will be considered a “high risk” borrower.

If you’ve never had a credit card before, a good place to start is at a credit union. Department store cards, gas cards are also options for first-timers. If you have negative marks on your existing credit history, consider a secured credit card. This type of credit card requires a cash deposit, which typically then becomes your credit limit. Be sure to ask the credit card issuer if they report to credit bureaus, and if not, find one that does. Keep your secured card for at least six months before applying for an unsecured card.

Always use credit responsibly. Your bill and credit card payment history accounts for at least one-third of your credit score, so always pay your credit card and other bills on time. Set up auto pay for recurring bills so you never miss a payment and keep an eye on your bank accounts to ensure you have enough money in the account to pay those bills. Always try to keep your credit utilization below 30 percent of your available credit to show you are able to live within your means. Create a budget so you know just how much you can afford to spend each month after you’ve made monthly payments.

Start paying off student loans. Once you graduate, it’s time to start chipping away at those student loans (if you haven’t already started). Even though student loans are for college tuition and generally have low interest rates, they are still considered debt. Be sure to pay your student loans on time, every month so they won’t have a negative effect on your credit score.

Buying a new home may not be on your checklist for the first few years out of college, but if your credit score checks out and you can afford the payments, purchasing a home will allow you to build equity and better prepare for your future than renting. For more information about building your credit as a graduate, click here. When you’re ready to make your first home purchase, remember a PrimeLending home loan expert can answer your questions and help you get prequalified* for a mortgage.

*A prequalification is not an approval of credit, and does not signify that underwriting requirements have been met.

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