Tag Archives: credit history

The Ins & Outs of Avoiding Bad Credit Pitfalls for College Grads

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When it comes to credit score, there’s no such thing as throwing out the lowest test grade or offering a chance for extra credit. That’s why college students need do their homework early on so they can pass the credit test during those vital first few years in the “real world.”

The first rule of credit: Use it or lose it.

In other words, in order to create a strong credit profile (and qualify for future auto or home loans), you have to demonstrate that you’re able to use credit responsibly. You’ll likely have to start out slow, like opening your first credit card account, making small but manageable purchases with it, and paying your bill on time every month. From there, whether you have an auto loan or a cell phone bill, the key is to make on-time payments.

Need a Bail Out? Transfer Your Credit Card Balance

You’ll have to pay your dues.

As is the case with breaking into a new field right out of college, sometimes your youth goes against you and you have to prove yourself. In other words, you won’t get the best credit card rates in the early years of your credit history because you haven’t earned them. But you can and should still shop around for a card that has terms you can live with for a while (for starters, look for cards with no annual fee). The reason being you want to keep your first major accounts active for a few years to establish a strong history. Opening and closing new accounts all the time will negatively affect your credit score.

Don’t screw up your parents’ credit.

If your parents put you on as an authorized user on any of their accounts or co-sign to help you open a credit account or car loan, that’s an additional reason to be responsible with payments. If you don’t, it will ding their credit scores as well as yours.

Late payments are not “no big deal.”

As soon as you are late — even one day — on a credit card payment, your lateness is reported to one or all of the credit bureaus (Equifax, TransUnion, and Experian). The longer it takes you to pay, the worse it is (being 90 days overdue is worse than 30 days, for instance). To avoid being late, be sure you don’t spend beyond your means, and set an email, text, or calendar alert so you have a reminder to make your payments on time.

Minimum payments will keep you in debt for decades.

Paying your bills on time is the easy part; paying your balance in full is the challenge. If you run up your accounts and begin carrying large balances, paying just the minimum won’t do much to bring down your debt thanks to interest that keeps accumulating. And when it comes to credit scores, how much debt you have as compared to how much credit you have available is a big part of the equation. So if you have a $1,000 credit limit and a $700 balance, you have a 70 percent debt utilization (not good!). Experts say to keep it under 30 percent, or even better, pay your balance in full each month.

A healthy credit start takes discipline, especially for college grads who are just beginning to deal with financial independence. But it’s a much easier road than trying to dig out from under a credit score that tanks.

Todd Hills is the CEO of Pawngo , the first full-service online pawn shop intodd pawngo hills the United States. After more than 25 years owning and operating brick and mortar pawn shops, Hills decided to bring this 3,000 year-old industry online. 

Establishing Credit for the First Time

credit cardThis week I want to share some wonderful stories and experiences I read from Clark Howard’s new book, Living Large for the Long Haul. In it, he shares the stories of over 50 different people from all socio-economic backgrounds who have improved their finances even through The Great Recession.

Many readers have expressed interest in establish or improving their credit score.

Building a Solid Credit History

Whether you are on your own financially for the first time or you’re getting used to the American credit system as an immigrant, you’ll find Patricia’s story helpful and encouraging. Coming to the United States in 1990, Patricia found herself bewildered by the new financial system, which included 401(k)s and credit scores.

She started off with small goals, such as building up and some savings and she learned how to get bargains on what she bought. From there, she got a credit card that she paid off every month, slowly establishing a credit history. She also started investing for retirement and she eventually got a mortgage, five years after coming into this country.

Best Ways to Establish Credit

If you’re looking at getting some credit established without straining your finances, there are a few things you can do:

  • Get a Secured Credit Card: As the name implies these credit cards are opened when you deposit a certain amount of money as collateral. I suggest looking at local credit unions or small banks to get you started as you’re more likely to get a better deal with them. Double check all the terms before signing up. You don’t want a card that will hit you with a ton of small fees.
  • Stay Away from Store Credit Cards: While many credit cards are notoriously easy to open, they are just as known to have some pretty bad interest rates and fees. That can hurt you if you get hit behind on payments due to the extra costs of having the card.
  • Become Familiar with Your Local Credit Union or Bank: With a smaller financial institution, you can get more assistance and face time to help you avoid the pitfalls of having a card.
  • Pay off Your Balance in Full: Since 35% of your credit score is based on your payment history, make sure you only use your card on small charges that you can afford to pay off each month.

When establishing credit, make sure you’re thinking long term. In time, you can build a solid credit history and still be able to keep your money in the right spot.

Getting Your Free Credit Report and Score for Free

credit sesameIf you’re looking for a free option on checking your credit reports, you can use Annual Credit Report. You’re entitled to review all 3 of your reports for free. This is a completely free site – no trial and no membership sign-up.

I want to mention, though, while you can get your credit reports through Annual Credit Report, you can not get your credit score.

You can use free option like Credit Sesame to get a credit score using data from Experian updated monthly. The free membership (no credit card required) allows you to see your credit score and you can also get suggestions on ways you can save money on your finances, like mortgages or credit cards. I wrote a review on Credit Sesame if you’re interested in how it works.

Establishing Credit

How many of you are trying to establish credit right now? What have you found incredibly useful for you? What obstacles have you had to face?

Photo Credit:   by 401(K) 2013