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 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
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 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% 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 Month/Day/Year, 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 08/21/18. 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@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). 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 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|