As a new college graduate you are setting up all kinds of patterns in your life. Some will be good, and others not so good. Which direction they take will depend on how you handle them. Credit is an excellent example. Many new college grads mess up their credit, either because they don’t fully understand how credit works, or because they get into bad habits early.
Here are seven ways for you to avoid messing up your credit at this incredibly important time in your life.
1. Keep Your Borrowing to an Absolute Minimum
This is easy to say, but hard to stick with. When you graduate from college it can seem as if you have infinite needs. There may need to be an apartment to furnish, a car to be purchased, and even a badly neglected wardrobe that needs to be filled. After all, after several years as a struggling student, there probably wasn’t much room in the budget to pay for any of these.
As much as you may need them, resist the urge to pay for them with additional credit. This is doubly important if you graduated with significant student loan debt and other school related obligations. If you can, pay those off before taking on any new debt.
Excess credit obligations are a sure path to bad credit.
2. Learn The “Art of Deferred Gratification”
Optimism runs strong with new college graduates, but you still have to be careful. That means you may not be able to have everything you see and want. The rules of economics apply even once you graduate college and start earning a salary. That income will only stretch so far, and you have to make sure that whatever obligations you incur will fit neatly within your budget.
Delayed gratification can be your best friend at this point in your life. If you don’t absolutely need it, don’t buy it. And if you do absolutely need it, find a less expensive way to pay for it. As a rule, try to avoid purchasing anything that will require you to borrow money. Buy a car that you pay cash for, buy your clothing at thrift stores, and purchase furniture secondhand. Also avoid expensive vacations, high-end restaurants, and gold-plated entertainment.
There will be plenty of time for all of that later.
3. Avoid Come-on Offers
As a new college graduate you are often seen by marketers as “consumers in training”. Companies see you as a future market all by yourself, and they want to get in on the action as soon as possible. For that reason, many will offer “too good to pass up” credit deals, that will make it seem only too easy to buy whatever it is you want.
Be especially careful, as many of those offers come with steep strings attached. For example, credit offers that allow you to defer making payments until next year could come with 22.9% interest rates that continue to accumulate interest even while you are not making payments. While it may feel good during the nonpayment phase, the reality of repayment will be a rude awakening, and one you may not be able to pay.
4. Just Because Someone is Willing to Give You a Loan Doesn’t Mean You Can Afford It
On an emotional level, it can be flattering when a bank or credit company is willing to extend you a loan. In fact it can often seem as a validation of your educational attainment. But just because a lender wants to make you a loan doesn’t mean you can afford to take it.
This gets back to companies looking to grow new college graduates as future customers. By virtually giving you a loan – whether or not you can truly afford it – the lender is locking you in early as an ongoing customer. Don’t fall for it! Never assume you can afford a loan because a lender is willing to give it to you.
5. Saving Money Should Precede Borrowing
As positive as you are about your career at this moment, it’s important to realize that jobs can disappear. For this reason, your first financial challenge should be to create an emergency fund. This should provide you with a sufficient amount of money to cover at least 90 days of living in the event you lose your job.
You should have that taken care of before you even consider borrowing money. Not only will it provide you with a needed level of financial insulation, but it will also start you off in life as a saver, which is something that you need to be.
6. Never Overlook the Obvious – Pay All Debts On Time
This is so obvious, but still needs to be mentioned. As generous as creditors can be when they’re doling out loans, they can be unforgiving if you don’t make your payments on time.
This can result in all kinds of bad outcomes, including bad credit entries on your credit report, a rapidly declining credit score, frozen credit lines, and the inability to get loans from other lenders.
This is why it’s so important to avoid taking on more debt than you can comfortably afford to pay each month. Missing just one or two payment deadlines could start the credit dominoes falling in the wrong direction in your life. And that can set you on a treadmill that won’t have a happy ending.
7. Get Help if You Already Have Credit Problems
If you already have credit problems, and many new and recent college graduates do, it can help your situation if you can fix those now. Credit problems mean that you will pay higher interest rates on any money you borrow – and even keep you from getting any credit at all.
If you’re not in a position to fix your credit problems, help is available – it’s important that you take advantage of it. Credit problems only get worse with time, and you can help your own cause by fixing them as soon as possible.