I Am a New College Graduate. How Do I Establish Credit?

George Krueger & Mary-Lynn Foster — Fri, 30 May 2008 06:30:41 +0000

Bigg Challenge
Leah just graduated from college. She has applied for several credit cards and been turned down because she doesn’t have any credit history. She says she’s never borrowed before or even had a credit card. Her bigg challenge: How can she establish credit?

Bigg Advice
Great question, Leah! Here are 3 tips to get started:

#1 – Get a bank loan.
This will cost you a little but it will be worth it so you’ll have access to money when you need it. Here’s a way to definitely get a loan:

Deposit $1,000 into an account (e.g. a Certificate of Deposit, commonly known as a CD) for a fixed period of time (e,g. 3 months). Ask that same bank for a $1,000 loan to be paid back at the end of the three months. They may require you to pay the interest monthly, or they may not.

Your loan is 100% secured by the CD, so the only risk the bank has is that you won’t pay the interest. You’ll earn interest on the CD, but not as much as you’ll pay on the loan, so you’ll be out-of-pocket a little bit of money.

But you’re establishing credit. At the end of the three months, pay back the $1,000. Now, up the ante. Do the same thing all over again with say $2,000. Then again … each time increasing the amount. Over the course of the year, you may do this four times.

Keep the amount relatively small because you don’t want to needlessly pay interest. You’re establishing that you can pay back a loan of $1,000, $2,000 or whatever the highest amount is that you borrow. Just make sure you make every payment on time.

#2 – Have a savings account, not just a checking account.
You’ll look more favorable to certain companies if you also have a savings account. Don’t think you have to stuff it full of money. It just seems to make a difference that you actually have one.

#3 – Keep a landline phone number.
Some companies seem to feel that this demonstrates stability. They reward you for it by extending credit. So at least while you’re trying to establish credit, maintain a landline phone number.

Thanks, Leah for sending us your bigg challenge.

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Our bigg quote today comes from Benjamin Franklin:

“Remember that credit is money.”

So establish your credit and score!

Next time, we’ll discuss why work life balance doesn’t work. Until then, here’s to your bigg success!

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I Am a New College Graduate. How Do I Establish Credit?