The New Grad’s Guide to Good Credit

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Dear graduate,

Congratulations! You’re finally free from all those papers, problem sets, midterms and finals, and are now stepping into the “real world.”

To celebrate, I’d like to give you a gift — one that could potentially save you thousands of dollars over the course of your life.

Credit Karma crunched the numbers and found that if you have excellent credit, you could pay $230,000 less in interest over a lifetime than someone with poor credit. And you’re at a great stage in your life where you may be just starting to build or are looking to build your credit history. This means you likely have a clean slate — an opportunity to make your credit the best it can be.

If your experience was similar to mine, you probably didn’t learn about credit in college, so this guide — a product of both my life experience and everything I’ve learned from working at Credit Karma for almost four years — is my gift to you.

Let’s get started!

Photo courtesy of Sean MacEntee

Step 1: Consider getting some form of credit.

If you’re looking to build good credit, you may want to get some form of credit as soon as you think you’ll be able to handle the responsibility — the earlier you start, the longer your credit history could have to grow.

While getting approved for credit for the first time may seem difficult, it’s not impossible. Here are a few options for those just starting out:

  • Secured cards. These cards typically require you to make a cash deposit to help reduce the risk on the lender’s end — if you don’t pay your credit card balance and go into default, it can be extracted from your deposit. Because of this, they’re often easier to get than unsecured cards.
  • Retail cards. Ever been asked if you want to open up a store credit card as you’re paying for your purchases? That’s a retail card. These cards can be easier to get, as retailers are often willing to take the risk of lending to someone without an established credit history in exchange for the possibility of the cardholder spending more money at their store. But beware — they can come with lower credit limits and higher interest rates, and many cards can only be used at the retail store that issues them.
  • Student cards. Student cards are exactly what they sound like — cards designed for younger consumers with little to no credit history. Like retail cards, they often offer high acceptance rates and may even come with rewards. However, many have low credit limits and high interest rates.
    Asking to become an authorized user. If any of your close friends or family members have good credit, asking to become an authorized user on one of their cards could help you build credit. Just keep in mind that while you likely wouldn’t be legally responsible for repaying the debt as an authorized user, any activity on the card, whether good or bad, and whether made by you or the cardholder, could affect both of your credit histories.
  • Getting a cosigner. If you aren’t able to get credit based on your credit history alone, some cards may allow you to jointly apply with someone who has good credit. This approach differs from asking to become an authorized user in that both you and your cosigner are held liable for repayment.

Step 2: Practice smart credit habits.

Once you have credit, it’s time to prove you’re a responsible borrower by practicing smart credit habits. Here are some ways you can do so:

  • Don’t max out your credit cards. One factor commonly used to calculate your credit score is your credit utilization rate, which you can determine by dividing your total balances by your total credit limit. For example, if you have a $5,000 credit limit and your balance is $1,000, your utilization rate is 20 percent. The higher your credit utilization rate, the more lenders may fear you’ll have trouble paying the debt back, so a good rule of thumb is to keep your rate under 30 percent if you can.
  • Pay your bills on time (and in full, if possible). Your credit score tells lenders how likely you are to repay debts in a timely manner, so paying your bills on time is a great way to help build a positive credit history. Paying in full not only could save you money on interest, but could also help keep your credit utilization rate low.


Photo courtesy of

Step 3: Don’t spend your entire paycheck.

Once you start working, it can be tempting to spend your paycheck on lunches with your new coworkers, vacations or shiny new gadgets. After all, you’ve worked hard for that money, right?

However, a little restraint now could save you a bunch of headaches down the line.

Saving today is all about being able to handle emergencies in the future, which can not only help you avoid a lot of stress, but can also help you maintain good credit. Creating and contributing to a rainy-day fund can help ensure that you’re able to continue paying your bills even if you lose your job or run into a medical emergency. As just one late payment could drop your score dramatically, your savings could help preserve the good credit history you’ve worked so hard to build.

Step 4: Monitor your credit.

Once you’ve begun building credit, it’s important to monitor your progress regularly. Checking your credit reports and scores each month could help you learn about what actions affect your credit and encourage you to continue making responsible decisions. In addition, monitoring your credit can help you discover and deal with fraud before it gets worse.

Bottom Line:

While you may be done with college, you can’t escape being graded on your creditworthiness. By practicing smart credit habits now, you can start your credit history off right and be better prepared for life after college.


Special Thanks to Our Partner

FindSpark Credit Karma

Whether it’s finding an apartment, applying for a new credit card or getting a car loan, your credit can make a big difference. If you’re not sure where you stand or how you can start building your credit, Credit Karma can help. They’ll hook you up with your scores, reports and a whole bunch of helpful tips, and it’s all totally free.

About the Author

Whether it’s finding an apartment, applying for a new credit card or getting a car loan, your credit can make a big difference. If you’re not sure where you stand or how you can start building your credit, Credit Karma can help. They’ll hook you up with your scores, reports and a whole bunch of helpful tips, and it’s all totally free.

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