Your credit might be the last thing on your mind after you graduate. After all, there’s so much excitement going on with finding a new job and a new place to live, and launching yourself into the full-fledged adult world.
With all of this going on, it’s no wonder that 46 percent of soon-to-be college graduates have never even seen their credit report, according to a 2016 Experian survey. But if you can take a second to plan ahead, you can help unlock your future financial goals more easily by building your credit now.
Starting early is important because a good credit record takes some time to build. You’ll want good credit when you go to apply for a credit card, car loan, or mortgage later on. And these days, it’s not just lenders who look at your credit record, but also landlords, car insurance companies, and even some employers. (See also: 6 Ways Life Is Better With Good Credit)
Luckily, building your credit isn’t as hard as it sounds. Here are the six best things you can do now to start.
1. Apply for a credit card
This might sound counterintuitive, but using credit cards wisely is the fastest way to start building credit. FICO, the credit scoring model that most lenders use, weighs revolving credit such as credit cards heavier than installment loans such as your student loans.
Perhaps you already have a student credit card that you’ve handled responsibly — if so, you’re off to a good start. But if you have no credit history, you may need to become an authorized user on a parent’s credit card. As long as your parent pays their bill on time and keeps their balances low, you’ll benefit from their good habits. At the same time, you won’t be contractually responsible for the debt on the credit card (your parent may have other ideas, though).
Another option is to apply for a secured credit card. A secured card charges you an upfront deposit, which is often about the same amount as your credit limit. That makes the card very low risk to lenders, and therefore fairly easy for credit newbies to qualify for. Keep your balances low and pay every bill on time, and you should be able to upgrade to a regular credit card in about six months.
2. Never miss a bill payment
Your payment history makes up a whopping 35 percent of your credit score. It’s the single biggest factor that makes up your score. Even one late payment can drop your credit score, and once it’s on your report, it takes a full seven years to fall off. A late payment on your credit card made when you’re 23 can haunt you until you’re 30.
That’s why it’s so important to not miss payments. One of the best ways to combat this is by putting all of your bills and credit cards on autopay. Once you do that, you don’t even have to think about paying them. (See also: The 5 Things With the Biggest Impact on Your Credit Score)
3. Pay down your student loans
The average college student graduated with over $39,000 of student loan debt in 2017. That’s a tough pill to swallow, especially since you may not even have a job yet, and if you do, you may not be earning very much.
But once you start earning money, paying down your student loans can boost your credit score. The more you pay off, the more of a benefit you’ll see.
Bonus: If you pay extra on your student loans, you’ll pay less interest overall and be free of the debt sooner. Then you can start funneling that student loan payment money to other things.
4. Avoid racking up credit card debt
Credit cards are useful tools for building credit — with one big caveat: Do not rack up a large amount of credit card debt if you can help it. Doing so can hurt your credit score. Your credit utilization ratio — the amount you owe versus the amount of available credit you have — makes up 30 percent of your FICO score. It’s the second-most important factor in your score.
This can be especially difficult, because again, you’re facing a lot of demands on your money after you leave college and you may be earning the least amount you’ll make during your entire career.
One trick that can help is, before you make a purchase, ask yourself: “Do I really need this thing?” If you’re tempted too often by your credit card, another solution is to freeze it in an ice block in your freezer. That way you still have access to it if you really need it, but it’ll take time (during which you can think) to unthaw the card to use. (See also: 7 Effortless Ways to Prevent Budget-Busting Impulse Buys)
When you do use your credit card, aim to pay your credit card bill in full every month if you can. You’ll avoid paying any interest that way, and it will keep your credit utilization ratio low. But that raises the question: If you already have the money to pay off all your purchases, why use a credit card at all?
As stated above, using a credit card builds credit. In addition, credit cards give you protections that debit cards don’t provide. What’s more, by using a rewards credit card — and paying it off promptly — you can also earn cash back or travel rewards.
5. Check your credit report for mistakes
The Federal Trade Commission in 2012 released a study that said 25 percent of people identified errors on their credit report that might affect their credit scores. Today, with the never-ending wave of data breaches, it’s especially important to stay on top of checking your credit report.
To make matters a little more confusing, you actually have three credit reports — one from each of the three credit bureaus: Equifax, Experian, and TransUnion.
You can get a free copy of your credit report from each of the three agencies by visiting AnnualCreditReport.com. You can only check each agency for free once per year, so one way to approach the task is check one agency every four months.
6. Avoid closing any student credit cards you may have
Once you leave your school, you might think it’s time to cancel your student credit card if you have one. After all, you’re not a student anymore, right?
Surprisingly, it might be a better idea to hang onto the student credit card, or speak with your credit card company about having it converted into a non-student version. That way, you can keep your credit history open and growing with this particular card.
The length of your credit history makes up 15 percent of your credit score. It’s also one of the most difficult factors to change because all you can do is sit and wait while the average history on all of your accounts grows with each passing year.
That’s why it’s a good idea to keep your student credit card open if possible. It’ll give you a leap forward in growing this part of your credit profile.
You can do this
Building up your credit can seem like an intimidating topic at first. But trust us: If you’ve gone through college, you have the skills needed to learn how building your credit works. Now all you have to do is put these factors into practice and you’ll be well on your way toward a healthy credit score.