If you’ve just graduated this year and are out on your own for the first time, congratulations. If you’re not headed back to grad school, report cards and grades are behind you. . . but only sort of. Once you’re out of school, you’ll be ‘graded’ for the rest of your life—but this time the stakes can be much higher. How much money you have in the bank (and other investments) and how high your credit score is can determine which financial opportunities (like owning a house or buying a car) you’ll be able to do. Fail on these two counts and you’ll end up in the company of most people who have no savings, no home ownership, no luxuries, and no retirement to count on.
But you’re in a terrific place right now for making all the best things happen: save money so you can afford the house or car, the luxuries, and the retirement you want. . . and boost your credit score as high as possible so you can get great rates on that house or car, get the job you want (yes, many employers look at credit scores to see how responsible you are), and be able to take advantage of loads of financial opportunities down the road.
Because these two things are crucial to your financial health, and because it would be impossible to touch on every important point you need to know about in one article, you’ll be hearing about them often in your monthly Doses of Reality. In this issue, we’ll focus on your credit score.
So for starters, you need to know where you stand credit-wise. You need a copy of your credit report and score so you can get an idea of what you’ll need to do to increase your score as high and as quickly as possible. Scores don’t change very quickly, so now is the time to find out where you’re starting from and get working on improvements so you’ll be ready when you want to buy a car, a home, or even get or change jobs to one that might take a peek at your score to see ‘what kind of person you are. ’ Start with a credit reporting site—it’s best to get reports from all three major credit reporting agencies because when a potential lender looks at your credit, they look at all three (the scores will be different for each, since their criteria are different for determining scores), and they’ll come up with some type of combined or median score to determine which interest rate they’ll offer you for your car or home purchase—the better the score, the lower the interest rate you can get. [see the link at the end of this article for the fastest route to a good credit reporting site]
A great way to get started if you have no credit history yet is a prepaid credit card. With these, you put the money up and then go shopping. You might put $250 in your account, use the card for groceries, and ante up another $250 (or whatever amount you choose) when you’re about to run out. These are perfect for people with no or very bad credit—you’re guaranteed to get the card and can start building a credit history immediately. Then, after a couple years of handling that card responsibly, you should qualify for a ‘real’ credit card.
If you have only a little credit history built up (maybe from using one of those prepaid cards), your best place to go next is to get a credit card with a low credit limit, and preferably no annual fee. Use it for only a few purchases each month and pay it off when the statement comes in the mail. Lenders will be looking at your credit report for the length of time you’ve had a credit card as well as whether you pay on time.
If you keep your balance each month well below your limit, that’s good, too, because lenders don’t want to see you maxed out. The Discover card is a good one to start with. . . their student card has no annual fee and you get that rebate at the end of the year that they’re famous for. If you can’t qualify as a student any more, shop around and find a card that will work for you—keeping in mind that if you’re going to pay it off every month (and you definitely should!), the annual fee is more important than the interest rate. Go for a card with no fee, pay it every month, and that credit will cost you nothing at all, but will boost your score every month you handle it responsibly!
To find links for these credit cards, credit reports, and other financial helps, see http://www.EducationForReality.com/resources_money.htm
Kathryn Marion is President of Education for Reality™.in Erie, Colorado. Her book Success in the ‘Real World:’ The Graduate's Complete Guide to Making the Most of Your Career (and Your Life!) was released in April ‘05 in e-book format for its tenth anniversary-it was distributed through schools, colleges, and universities to nearly two million new graduates. Jam-packed with savvy insights and helpful advicem it covers everything from careers to money management to handling personal and even legal matters.
Visit http://www.EducationForReality.com and sign up for the free monthly newsletter, Dose of RealityTM-it will give you a ‘dose’ of advice on your career, your money, and your life each month as well as point you to additional online resources which will help you in these areas-so you don't have to surf the Net (we do it for you!).