Graduating from college is a major accomplishment. Of course it also means trading in the lifestyle of classroom lectures, exams and writing papers to a new one that involves looking for employment, a place to live and–in the case of many recent grads–managing student debt.
Just as it is vital to begin effectively paying down student debt, it is equally important to carefully monitor one’s credit score, as well as learn the ways to build and maintain a strong credit history. Some college students–even graduates–fail to understand the true impact their credit score has on their future. Not taking this subject seriously sooner than later could lead to negative consequences down the road.
A Good Credit Score = A Good Future
Having a good credit score isn’t just for bragging rights. The better your score is, the easier it will be for graduates to establish themselves in a comfortable lifestyle.
Plan on buying your first home? Want to upgrade your old car to a new one? The ability to get the home or vehicle of your dreams depends heavily on what your credit score shows.
A solid score means not only getting approved for a home or auto loan but securing the most affordable interest rates. That means the opportunity to have a cushy lifestyle without spending too much money on these expenses.
Don’t Cancel Those Credit Accounts
The most common mistake made is canceling accounts that haven’t been used for a long time. While this makes sense, as it applies to a person’s credit history, taking this type of action does more harm than good. 15% of a person’s credit score is determined by how long they’ve had a history of credit. The longer the history, the higher it will bump up the score. Canceling a credit account means it is no longer on your credit history/record–you’d be lowering your score without even being aware of it.
The solution? Leave the account as is. Even if it’s been years since you’ve put a charge on it, an old, dormant account is ideal for showing length of credit history. You won’t be penalized and eventually the company will cancel the account for you after a certain period of time. This is the best way to go about closing an account without jeopardizing your score and history.
Understand What Makes Your Credit Score The Way It Is
One of the best ways to build a strong credit score and history after graduation is to understand the actions/factors involved. Below is a breakdown of these factors, which should be used to determine what your priorities should be when it comes to tackling any debt you’ve taken on during your college years:
- Record of on-time payments made (35%)
- Amount owed (30%)
- Length of credit history (15%)
- New credit applied for (10%)
- Type of credit used (10%)
Based on knowing those 5 factors, it’s easy to see where a person can improve their spending/borrowing habits in order to prioritize future purchases, as well as how to use their current funds to keep their budget under control.