Article | 3:15 min read

How You Can Start Building Your Credit Score: Part I

Credit and Debt

A couple looking at a phone together

Building and maintaining credit is arguably one of the most important parts of your life. That three-digit number helps to determine if lenders can trust you enough to loan you money to buy a home, car, or open another line of credit.

Unfortunately, it's much easier to ruin your credit than it is to build it up. A handful of missed payments can knock down your score to subpar levels and you'll have to work hard to build it up again. It's not impossible, but you'll have to remain committed to the process. Understanding what a credit score is composed of will also help [1].

But if you've recently graduated college or will be doing so in the near future, you may be wondering how you can build up your credit. For example, if you're looking to open a line of credit, the lender will often require proof of your annual income to help determine what your credit line should be.

Providing that information is made more difficult because of the fact that, as a recent grad, you don't have any prior history to show to lenders you're a reliable borrower. You might also not have a high enough annual income to prove to lenders you can pay back the money you borrow.

Luckily, you will be able to build up your credit score in some ways you might not have originally considered.

Get a credit card

There are a few ways you can obtain a credit card soon after graduation. You may even consider making it one of those financial moves you complete because building credit is important. Some landlords check your credit history to ensure you'll pay rent, and if you're looking to start living on your own, it's important for you to prove you're reliable.

Qualifying for a standard credit card under your name might turn out to be difficult due to your lack of credit history. In these instances, you can inquire about opening what is known as a secured credit card.

According to Bankrate, a secured credit card will require you to put forward cash that acts as collateral [2]. Other factors taken into account include your income and ability to pay.

If you have $500 to use as collateral, that's how much your credit limit will be set at. Keep in mind that the money you put forth as collateral does not count as going toward your monthly payment. But other than that difference, secured credit cards work exactly like their normal counterparts. You can use it to make purchases and more, provided you make the payments on time.

"There are a few ways you can obtain a credit card soon after graduation."

Become authorized

The second way to build your credit is to become an authorized user or have a cosigner, such as one of your parents. There are key differences between the two that you'll have to remember, however.

When your parents let you become an authorized user, you're able to use their credit card but are not responsible for the debt or monthly payments – they are. Even so, you should still strive to give them enough money to cover your portion of the monthly bill.

Having a cosigner on your credit card differs in that you and the cosigner are both responsible for the debt. Essentially, if you miss a monthly payment, not only will your credit score be affected, but so too will the cosigner's. You'll have to ensure the bank or financial institution allows cosigners because not all lenders will let you to choose this method.

The above methods are especially helpful if you just exited school and are looking to start building credit. But once you have a credit card, you'll have to monitor your usage and avoid overspending, as that can damage your credit score.


[1]. What's in my FICO Scores

[2]. Which credit cards allow co-signers?

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