Q. I am a recent college graduate and have no credit history. How do I build good credit?
A. Having no credit history at all can be just as bad as having bad credit. The good news is that at least you're not thousands of dollars in debt. Still, your credit worthiness influences a lot of decisions, from the premiums you pay for auto insurance to whether you get that first job or apartment you want.
"There are so many decisions based on your standing," beyond lending, said Lucy Duni, director of consumer education for TransUnion's TrueCredit.com, a credit monitoring service.
The first step recent college graduates should take is to get a full picture of their credit history. Contact the three nation-wide credit report-ing agencies — Equifax Inc., Experian Information Solutions Inc. and TransUnion LLC. — just to see if anything has been reported. For a good credit standing, you should have a FICO score of 680 or higher, according to Duni. (FICO scores are named for the Minneapolis-based Fair Isaac Corp. that developed them and range from 300 to 850.) Young graduates might be surprised that they may have some credit standing because of a utility bill in their names, Duni said.
Once you confirm what's on your credit report, here are some steps to build credit worthiness:
- Open a bank account, but don't overdraw your account. Bank accounts don't appear on credit reports, but how you manage your savings or checking accounts gives you more credibility to lenders.
- Apply for department store or gas credit cards. These credit lines are easier to qualify for than a major credit card, according to Susan Keating, president and CEO of the National Foundation for Credit Counseling, a nonprofit credit counseling organization.
But make sure they report to a national credit bureau. "There's no point in securing a card if it isn't reflected in a credit report," Keating said.
At the same time, experts also warn not to apply to too many cards all at once. Duni estimated that every inquiry drops your credit score by about 5 points, as lenders think you're desperately seeking financing.
- Once you have the credit cards, make sure you use them responsibly. Keating encourages recent graduates to stay within 30 percent of a credit card limit. And pay on time — late payments hurt your credit report and result in high finance charges.
- If you get turned down for a credit card, experts recommend applying for a secured credit card which requires you to put down a deposit, usually between $200 and $250 with your application, according to Bankrate.com, an online publisher of bank and credit card information. The big disadvantage is that many of these secured cards have high interest rates and annual fees, according to Bankrate.com.
Overall, experts urge young college graduates to use their newfound credit wisely and create a budget, listing how much income they are bringing in monthly so that they can plan their expenses accordingly.
"It's easy to get over one's head," said Keating. "It's really important to be disciplined to manage the debt load. You really need to make a budget."
On the Web: www.equifax.com www.ExperianDirect.com www.nfcc.org www.truecredit.com