null How to Build Your Credit History after College
If you’re a recent college grad, you probably don’t have much credit
history established. But as you’re making the transition from college
to adult life, now would be a good time to start focusing on building
your credit. According to Experian, your credit history can affect
everything from your employment to your housing. If you’re applying
for a credit card, car loan or mortgage, your credit history plays a
key role in whether or not lenders will approve you, hence the reason
why building your credit is so important.
How does credit work?
Most likely, your credit wasn’t top of mind while you were in
college, so knowing how credit works may be foreign territory for you.
Here’s a quick rundown of the basics:
Your credit report A credit report is a document containing your
personal information, credit account history, credit inquiries and
public records, which may include prior bankruptcies and accounts
that have been sent to collections. Information found in your credit
report may be used to calculate your credit score, which is a
numeric value that informs future lenders about your
creditworthiness. This information is reported by creditors to the
three major credit bureaus — Equifax, Experian and TransUnion.
Consumers can receive one free credit report check every 12 months
from each of the three bureaus.
Your credit score A credit score is a numeric value based on your credit
history (number of open accounts, total amount of debt and repayment
history), and helps lenders including banks, credit unions and
finance companies determine your creditworthiness or how likely you
are to pay back your debt. You can almost think of it as your GPA
for credit. While there are many credit scoring models, your FICO®
score is the one that is most commonly used by lenders to help them
decide whether or not they should offer you credit. FICO scores
generally range from 300 (bad credit) to 850 (excellent credit). In
general, the higher your credit score, the more likely you are to be
approved for financing.
Your payment history This is a record of how timely you are with making payments
on your open credit accounts and can have a significant impact on
your credit score. According to FICO, your payment history accounts
for 35 percent of your credit score. Since a positive payment
history begets a positive credit history, it’s important that you
make on-time payments every month.
Your credit history This is how long you’ve been managing your credit accounts
(i.e. rent, mortgage, credit cards, car loans, etc.) and is a major
part of what lenders consider when deciding to approve you for
credit. Generally, the more positive credit history you have, the
more positive it is for your credit score.
How do I build my credit history after college?
Start paying your student loans. If you have student loans, making timely payments every
month can help establish a positive credit history.
Apply for a secured credit card. A secured credit card (which
is backed by a cash deposit) is intended to help you establish
credit so that you may qualify for unsecured credit cards (that
don’t require the borrower to make a deposit) and make other large
purchases on credit.
Pay your bills on time, every time. Making on-time payments is a great way to improve
your credit and build good credit history. You can set up automatic
payments and/or electronic reminders to help you stay on track with
Keep your credit utilization low. Your credit utilization ratio is how much of your total
available credit you use. Most experts recommend using no more than 30 percent
of available credit on any card. So, for example, if you have one
credit card with a limit of $5,000, your recommended credit
utilization ratio would be $1,500. Also, since the amount of credit
you use in relation to your total credit limit accounts for 30
percent of your FICO score, it’s best to keep it low. A general rule
of thumb is the lower your credit utilization ratio, the higher your
Apply for subprime financing. Subprime financing is credit available to people who may
have otherwise been turned down by traditional lenders or finance
companies due to having bad credit or no credit. So, if you’re a
recent grad with no credit history established and are in the market
to purchase a vehicle, you could qualify for subprime auto financing
through a car dealer enrolled on the Credit Acceptance program. And,
since we report to the three major credit bureaus, you can build
your credit history with on-time car payments. Simply fill out the
form on our website and get connected with a car dealer enrolled
in our program that can help you start your credit approval today!