It’s that time of year. Birds are chirping, flowers are blooming and students are graduating. Whether you’re donning the cap and gown or snapping pics of a loved one getting their diploma, the “real world” is right around the corner. Often lost on a recent grad’s list of firsts (e.g., job, apartment, car), however, is establishing a credit history. Here are 3 ways grads may establish credit without even realizing it:
1. Credit card spending as an authorized user.
One way a recent graduate may already have a credit history is by using their parents’ credit card. If a student is an authorized user on a parent's card, that card’s information may show up on the student’s credit report.
What to think about: Adding your son or daughter as an authorized credit card user doesn’t change who’s responsible for charges — it’s still you. So if you’d like to help them establish credit this way, make sure you’re comfortable with how they use your card.
2. Making student loan payments.
Whether the borrower started paying down their loans during school or they’re about to start after graduation, this kind of activity typically establishes a credit history.
What to think about: If a student loan is in repayment status and the borrower isn’t making the required payments, this can establish the wrong kind of credit history: a negative one. So borrowers should make sure they’re actually paying what they owe every month.
3. Paying rent.
Making your rent payments isn’t just a good idea if you want to keep a roof over your head. It can also help you establish credit, whether it’s done during school or after you’ve graduated.
What to think about: If you’re paying rent, it won’t necessarily show up on your credit report. Make sure to ask your landlord to report your payments to the credit bureaus. Otherwise, you may not get credit (pun intended) for making those rent payments every month.
Whether you’re in school or in the “real world,” there are several ways to start establishing credit responsibly. And once you’ve established credit, you’ll have graduated to the next step: managing and protecting it.
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What You Need to Know:
There are various types of credit scores, and lenders use a variety of different types of credit scores to make lending decisions. The credit score you receive is based on the VantageScore 3.0 model and may not be the credit score model used by your lender.
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