Graduation season is typically filled with last-minute celebrations with friends, job applications and final, final exams. In fact, if you’re a soon-to-be college or high school graduate, building credit may be one of the last things on your mind.
But that needs to change. Credit will play a major role in much of your adult life, from getting that first car to renting an apartment and later buying a house.
There are many things I wish I had learned about credit earlier in life, but I was curious if any of my Facebook friends had insights to share. So, I asked: “What is something about credit/credit cards you wish you had learned prior to graduating from high school or college?”
I was pleasantly surprised by the amount of feedback I received. However, the comments made it glaringly obvious that many young adults enter the “real world” without much credit knowledge under their belts and learn credit card lessons the hard way. Many of my friend’s credit stories were similar to my own experiences: I’ve come a long way when it comes to understanding, building and using credit wisely, but I first learned many hard lessons and made mistakes, too.
If you’re graduating this spring and entering the workforce, here are some insights into the credit hurdles you may face as a young adult – and how to avoid them:
Lesson No. 1: Credit building takes time, so start early.
“I tried to get a credit card for the first time last year (2016) and found myself in sort of a Catch-22 situation. [Issuers] wanted me to have credit to get a credit card, but it’s difficult to build credit without a credit card or previous loans (which I’ve never taken out), and without having someone co-sign. My bank wouldn’t even approve me, even though I’m financially responsible. I ended up having to gradually open three different store-specific credit cards before I was approved for a general card I could use anywhere.” – Katie N., 25
You may want a credit card, but issuers aren’t just going to give you one without having a prior credit profile.
For many, building credit may start with student loans, a student credit card or, as Katie did, with a store-branded credit card. Store cards are typically easier to be approved for as they come with higher interest rates, smaller credit limits and can only be used at specific locations. My first two cards were a store card and a student card. I held those cards for about two years before I was approved for a general-purpose card. By maintaining a good payment history and keeping card balances low, your credit score and profile will grow. Building good credit takes patience, diligence and time.
Lesson No. 2: Avoiding credit altogether is not a good thing.
“I wish I would have gotten a credit card right after high school so when I applied for a home loan right after college I would’ve actually had a credit score. I thought I was doing myself a favor paying cash for everything.”
–Nathan H., 26
While statistics show young adults have loosened their grip on cash and debit, it’s a hard step to take. I primarily used my debit card all throughout college and still have trouble not reaching for it at times. It’s just comforting to know that when you use cash or debit, you are using money you have, and aren’t borrowing it.
However, as Nathan learned, even if you are great at budgeting and financially ready to buy a house – or finance any other large purchase, such as a car – it won’t matter much. Lenders want to see that you can handle a loan, and if you have no record of managing a credit card or two, or paying off a student loan, they have nothing to go on.
Lesson No. 3: Do research before applying for your first credit card.
“It would’ve been helpful to know what a typical interest rate is, and which companies are good for a ‘starter card.’” – Willow H., 24
Willow’s comment hit home for me. Before I started working for CreditCards.com, I had NO clue what a “good” card – or interest rate – was. My parents avoided using credit, and it wasn’t something I learned about in school. I applied for my first card (a store card from American Eagle Outfitters) on a whim because the retailer was offering a hefty first card purchase discount. My second card was a student card issued by the bank I’d been using for years. I got something in the mail about it one day and was like, “Sure, why not.” In case you didn’t know, that’s NOT a good way to apply for a card.
Fortunately, the internet can pretty much teach you all you need to know about the world of credit cards. If you are looking for a card right now, I recommend reading card reviews and comparing current offers before applying for anything.
Lesson No. 4: Use credit cards wisely.
Two friends said they racked up a lot of debt with their first card because they weren’t aware of the consequences of doing so:
“I stacked up a lot of debt because I wasn’t smart with mine.” – Ethan T., 27
“I’m still paying off my first credit card because of the interest rate.” – Emily W., 24
I’ll admit, I’ve done my share of overspending on credit cards, too. While cards can be a useful tool, they can be really dangerous – and costly, if you are paying the high interest rates typically given to young credit card holders.
If you are just starting out with credit, treat the card just like you would your debit card: Only spend what you can afford to pay off at the end of the month. Being an adult is expensive enough, there’s no need to add to the burden.
Want to learn more about basic credit management? Check out the CreditCards.com Help section.