Home > Credit Score > 5 Ways New Grads Can Screw Up Their Credit

Comments 0 Comments

Graduation can be an exciting and exhilarating time, but if you thought the era of grades and scores was over, I have some bad news: It’s not. While the As and Bs are behind you, they’ve been replaced with another number … a tricky little three-digit number called your credit score.

Your credit score is a calculation of your creditworthiness based on your credit history. It may be a lot to process right now, so I’ll do you the favor of a formal classroom education and just give you a handful of red flags. If you follow these simple guidelines, you can avoid many of the pitfalls new graduates suffer when it comes to their credit. (I recently wrote a guide with money tips for new grads, you can check it out here.)

1. Don’t Miss Payments

Your credit score is affected by a bunch of different factors, but the biggest one by far is your payment history.

Graduation is a time of celebration and a time of chaos. You’ll probably be moving, visiting friends and family, and otherwise enjoying your first unencumbered summer. In that chaos, it’s very easy to forget about certain, less-exciting, financial obligations. But credit cards, utility bills and other payments can come back to haunt you.

Be sure to set up auto-pay or email reminders so you do not forget a single payment. Missing payments will lower your credit score, and it would be a shame to tarnish a great credit history just because you were too busy having fun.

2. Apply for New Cards Sparingly

Once you start working, your income will increase. You could start seeing a lot more credit card advertisements and promotions come your way. Or maybe all those stories about travel hackers taking five figure vacations for only a few hundred bucks have perked up your ears.

But, every time you apply for a credit card, the issuing bank will make a hard inquiry on your credit report. Each of those hard inquiries will lower your score by a few points. Do this too often, and you could put a serious dent in your score.

It’s not a problem to apply for one or two credit cards, and it can be good for your score if you need them, but don’t go overboard.

3. Review Your Credit Reports

You have three main credit reports — Experian, Equifax and TransUnion — and the Fair Credit Reporting Act mandates that you can access them (and any other smaller bureau’s credit reports) once every 12 months to review them for errors and inaccuracies.

It’s a good idea to visit AnnualCreditReport.com, the government run website that helps you get your reports for free, every single year, to review your reports. Fixing any errors will take time, and the last thing you want is to try to fix your report while getting a mortgage loan.

I use what I call the Waterfall Method to stagger my three credit report requests, so I get a peek at a report every four months.

4. Don’t Be Afraid of Credit

If you don’t have any loans or use a single credit card, that can cost you. If your credit reports don’t have any installment or revolving lines of credit, the scoring equation has nothing to use to calculate your score.

No history can be just as bad as a poor credit history.

It’s important that you have (and use) a little bit of credit so you can demonstrate some history of using credit responsibly. That doesn’t mean you should carry a balance on a credit card — which isn’t necessary to having a good score — but it does mean getting credit is important.

5. Think Twice Before Co-Signing a Loan

As a new graduate, it’s unlikely you will be asked to co-sign a loan. But if you are, think twice before you agree to it.

Co-signing a loan, say, for a friend who can’t get one on her own, means you are on the hook for it as well. Co-signing means both people have full responsibility. If your friend fails to make a payment, the bank will go after you. If your friend misses a payment, it will be like you missed the payment, and that can wreck your score.

Avoid these credit land mines, and your credit score will be in great shape. You can monitor your progress by checking two of your credit scores, updated each month, for free on Credit.com.

More on Credit Reports & Credit Scores:

Image: sturti

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team