How to Build Good Credit for Recent High School Graduates
Building a good credit history is crucial for young adults, especially high school graduates. It not only impacts your financial life but also helps you in future endeavors such as securing loans, renting apartments, and even landing an apartment with a landlord or employer. Here are some key strategies to get you started on the right path.
Starting with a Secured Credit Card
The easiest way to get started is by obtaining a secured credit card. Visit your bank or credit union and bring a deposit of around $500. This amount will be the credit limit on your card, and you’ll use it to build your credit score. The key is to use the card for essential expenses such as gas and to always pay the bill on time. Payment history has the most significant impact on your credit score, so paying your bills fully and on time is crucial.
Source of Income and Utility Bills
Having a source of income is essential. A job with a reliable paycheck is a great start. Additionally, moving out and managing monthly expenses like rent, utilities, and phone bills can significantly contribute to your credit score. Utilize services like Experian Boost and eCredable Lift to include your utility and phone bill payments in your credit report. Both services can positively impact your credit scores, helping you qualify for credit cards or loans in the future.
No Fee Credit Cards
Consider opening a no-fee credit card. Charge no more than $10 a month and pay off the entire amount at the end of each month. Avoid getting into debt, as this will negatively impact your credit score. Remember, a credit card is not free money. Using credit cards wisely, and paying them off promptly, can build your credit history.
Choosing a Good Bank and Credit Union
Your financial situation is in good order, and you have a source of income that covers your liabilities. For a local credit union, the one-time membership fee might be a concern, but it shouldn’t deter you if the credit union offers services and benefits that you value. A checking account with a credit union can be advantageous, as it often includes better services and lower maintenance fees. This can improve your chances of being approved for credit cards and loans.
Managing Your Checking Account
It's crucial to be diligent with your checking account. Track your expenses and avoid bounced checks and overdraft fees, as these can harm your credit score. Getting in trouble with your debit card can cost you money and negatively impact your credit history.
Applying for Retailer and Gas Station Credit Cards
When you don’t have a credit history, consider applying for retailer credit cards or gasoline credit cards before a checking account. These types of credit cards are more lenient, as they aim to generate business and are willing to take a greater risk. You can apply for these cards a month after opening your checking account, as your account will be considered new. Most credit unions also offer loans, and you can usually borrow up to the amount in your credit union share account, which is a savings account.
Understanding Hard Inquiries
A hard inquiry is a check on your credit report, and they can slightly impact your score. However, they are necessary when applying for credit cards. Hard inquiries will disappear from your credit report after two years. Avoid applying for cards you don’t have a good chance of getting, as it can waste your inquiries. Instead, focus on opening accounts and maintaining them properly to boost your credit score.
Smart Credit Card Usage
The smart way to use your credit cards is to avoid spending more than you can pay in full each month. Set aside money each month for unexpected expenses, so you can pay your bills in full. By doing so, you can enjoy the benefits of a credit card without incurring any costs. Remember, a good credit history and score are the foundation for future financial stability.