Most people will tell you that maintaining a great credit score is an important part of wise money management. That’s because your credit rating will always be attached to you, determining future financial purchases and decisions.
As a new college graduate, you may not know much about how credit works. Or, how some behaviors can lead to poor credit.
Here are the top 10 financial mistakes most new graduates make that ruin their credit. And, how you can avoid making them in the first place.
1. Abusing easy credit
You’ve probably received dozens of credit card opportunities in the mail.
Each offer promises the chance to apply for a variety of new credit accounts. But don’t succumb to this easy credit trap.
It’s tempting to have access to new spending limits. However, it’s far too easy to simply swipe your card to pay for purchases you can’t really afford.
Wait until you have a secure paying job and are able to manage credit responsibly before applying for multiple credit card accounts.
2. Paying bills late
Most companies associated with your household bills like electricity, cell phones, and credit cards report your monthly activity to three main credit bureaus.
That means that bills that are paid late will post onto your credit report and negatively affect your overall score. Set bill payment reminders for yourself so you don’t end up paying them late and bring down your credit score.
Maybe you don’t have enough funds to cover all your bills when they’re due. Take a minute to call up your bill provider and ask to speak to a customer representative.
Bill issuers can often help you come up with a payment plan. Or, they may even set up a new payment date that works better for your budget.
3. Becoming a co-signer
While it may seem heroic to help your friends out by co-signing for a loan or credit card account, this can be a dangerous partnership.
As a co-signer, you’re basically promising the creditor you’ll make the payments on behalf of your friend if they fail to do so. In the event this happens, your assets could be fair game as payment to cover the balance.
This time in your life is best spent working on your own financial health and managing your money wisely. Don’t get involved with helping a friend until you have a solid foundation and history of well-managed finances.
4. Playing the credit score game
Don’t believe the myth that you have to carry a balance on your credit card to establish a better credit score.
The truth is, you can build a good history of credit by simply charging a small amount to your credit card account and paying it off in full every month. Or, even paying your regular bills on time helps you build up your credit score.
There are many factors that will help you increase your credit score and become creditworthy. Therefore, there’s no need to take on unnecessary loans or carry a credit card balance.
Consistent and smart financial decisions are the key to building a good history of credit, not playing the credit score game.
5. Not having a spending plan
No one enjoys the thought of having to stick to a budget. Nonetheless, it’s an important part of being an adult.
A budget allows you to protect your financial future, achieve big goals, and prioritize what’s important to you.
If you find the word “budget” too limiting, think of it more as a spending plan. Or, as a way for you to save up for things you really want and achieve your financial goals.
Not having a plan for your money could prevent you from managing all your bills, donating to important causes, and ultimately reaching financial independence.
6. Ignoring creditors
As much as you may dislike getting emails or phone calls from creditors, it’s not a good idea to ignore them. They won’t just go away.
if you continue to avoid paying or dealing with the debt that you rightfully owe, it will go into collections. This can ding your credit score, force you to pay additional fees, and pay more interest on top of the initial balance.
If you’ve fallen into a cycle of paying bills late, or not at all, don’t ignore the situation. Contact your creditors directly and ask about your options.
Most financial institutions want to collect on their debts. So they will work with you to offer up a mutually beneficial solution.
7. Not keeping tabs on credit reports
Everyone is entitled by law to receive an annual update of their credit report from all three of the main credit bureaus through AnnualCreditReport.
Don’t make the mistake of not checking your credit report on a regular basis, especially since you can do so for free. Small errors and big omissions alike can ruin your chances of establishing a good history of credit.
Plus, you may be able to thwart any fraudulent activity and protect your account from identity theft. By reviewing your credit report regularly, you could avoid ruining your credit altogether.
8. Mismanaging debt
Debt is not something to be taken lightly. It can have a large impact on your future and financial security.
It’s important to learn the basics of what good debt is versus bad debt, how different accounts affect your credit, and strategies you can use to pay off debt faster.
Limit your debt as much as possible. That’s because you’re essentially leveraging your future income to pay for something in the present, which is quite a risky gamble.
Keep your debt balances small and manageable so you can stay in control as much as possible.
9. Not saving for the future
As a recent college grad, it’s easy to get sidetracked with new opportunities as well as get overwhelmed with the responsibilities. But one thing you should not ignore is saving for the future.
This includes calculating how much you need to save for retirement and setting up a savings or investing plan that fits your needs.
You’ll be surprised at how quickly the years go by, so don’t fall behind on your savings goals and retirement goals. Your future self will thank you!
10. Maxing out your credit limit
A large portion of your credit score is calculated based on how high, or low, your debt utilization is.
In other words, spending the entire amount of your credit card limit on all your accounts has a negative impact on your credit history.
The goal is to only spend up to 30% of your credit limit across all accounts. This will help keep your debt more manageable while establishing a good credit rating.
Avoid these credit mistakes
Now that you understand a bit more about how certain behaviors can ruin your credit, you can use these tips to avoid future mistakes.
A good history of managing credit responsibly takes time and patience. Don’t let simple inaccuracies, errors, or mistakes undo the effort you’ve made so far.
Be proactive with your money and strive to build a trustworthy relationship with your creditors. Do your best to establish a solid reputation right out of college and you’ll be well on your way to being a responsible adult.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.28%3||Undergrad & Graduate|
|1.89% – 6.77%4||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.61%5||Undergrad & Graduate|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.