Recent graduates — from both high school and college — face similar questions and potential roadblocks when it comes to establishing and maintaining a good credit score and history.
It makes sense: they’ve likely been living at home with their parents, or with roommates in dorms, with little or no need to worry about their own personal finances. But, once graduation comes and goes, reality can crash down pretty hard on former students who are heading out into the workforce for the first time, and starting to consider where they’re going to live, what they’re going to drive, and so on.
So, the challenges come, not just from their relative lack of knowledge and experience in handling their personal finances (by the way, WHY isn’t this a required high school course for every American!?) but also from their lack of a substantial credit history. Just like the catch-22 they’ll run into looking for a job — no experience without a job, but no job without experience — they’ll find that lenders are leery of offering credit to someone who’s never had it before.
The credit card industry understands this, but, from the consumer’s point of view, this can be both good and bad:
- Good, because lenders have put programs in place to make it possible for students and recent graduates to begin building a good credit history, whether their current credit score is good, bad, or non-existent.
- Bad, because the number of available programs can be overwhelming and confusing, and, in some cases, the choices are NOT in the best interests of the consumer.
So, how can a recent graduate and/or their concerned parents weed through all the offers that are probably coming regularly in the mail and email inbox, and choose the best credit cards for their unique situation?
The key elements to look for in any credit card offer
David Weliver, editor-in-chief of MoneyUnder30.com, and a noted expert on young adult finances, makes an excellent recommendation:
“When choosing the best credit cards for young adults, I look for cards that:
- Offer better-than-average approval odds for consumers with shorter credit histories.
- Reward spending in categories most popular with our readers such as dining, travel or Amazon purchases.
- Do not charge excessive fees.”
Approval
The first key is that you want to find a credit card that will approve you, including whatever credit history or score you personally have right now. That’s important because many recent graduates come out of school and into the workplace with the belief that operating without a credit card is a good thing.
This makes perfect sense, and their heart’s in the right place. After all, today’s college graduates watched their parents struggle through the worst economic downturn the world has seen since the Great Depression, and high credit card balances probably factored into some unpleasant circumstances during their childhood. So, their attitude seems smart: by avoiding credit altogether, they can avoid overdoing it, and all the problems heavy debt can bring with it.
Plus, if they’re just out of college, they may well be saddled with significant student debt already, and feel that getting a credit card can only make matters worse.
However, there is a real flaw in this thinking.
Kevin Yuann, credit cards director at NerdWallet, famously noted, “not having a credit card is probably one of the worst mistakes you can make financially.” That’s because if you have no credit history, a lender has no information to use when deciding what sort of risk you will be. That means, if you ever want to make any sort of large purchase in the future — a car, a home, a wedding ring — you may be unable to even consider it.
Really, it’s in your best interest to develop a credit history as soon as possible and do everything you can to keep that history positive and active. The longer you have a credit card and demonstrate you can use it properly, the better your credit score will be.
If you need to fix credit mistakes you’ve already made, it’s never too late to get your credit history back on track with the help of a credit repair company!
There are other potential issues with avoiding credit altogether:
- Landlords often pull credit history to approve or deny prospective tenants.
- In some states, employers are allowed to pull credit history during the hiring process.
- Even utility companies can charge hefty deposits or other fees based on your credit score.
So, even if you’re dead set against drowning in debt (which you should be) you should try to get approved for a credit card as soon after graduation as possible.
Rewards
A second important factor in choosing the best credit card for a recent graduate is the rewards the card offers.
Every credit card company has cards in their portfolio that include some sort of reward. These can range from cash back on every purchase, to points you can accumulate toward certain items or privileges, to frequent flyer miles or other brand-specific perks.
If you have an established credit history and have maintained a good or excellent credit score, you can probably pick and choose from a host of different reward offers and find the ones that appeal most to you, personally. If you currently have little or no established credit, or if your score is on the lower end, you may not have as much choice available to you.
The most important thing to consider when it comes to credit card rewards is this: will the card be rewarding you for actions you would have taken anyway? And, are the rewards you’re receiving valuable to you?
For example, if you’re deathly afraid of flying and don’t expect to travel anywhere by plane at any point in the future, frequent flyer miles aren’t going to help you much. On the other hand, cash back is almost always good. And, special incentives for brands you frequently purchase or events you love to attend can be especially intriguing.
DO NOT, however, obtain a rewards card, then begin using it uncontrollably strictly to rack up the rewards!
Fees
Finally, there is the matter of fees.
If you have some level of established credit and your score is decent, you should definitely seek out a card with no annual fee. Many exist, and their interest rates and reward programs are generally competitive with those cards that do require an annual fee, so it only makes sense to save that money.
Again, if you have little or no credit history or you’re sporting a low credit score, you may find that a card with an annual fee offers better terms and/or rewards than you can qualify for otherwise. In that case, it may be worth paying the annual fee, at least until your credit score rises to the point that you can apply for a card with no fee.
If you plan to use your new credit card to consolidate any outstanding balances, pay attention to the rules and fees surrounding balance transfers. Some cards are specifically designed to make transfers very appealing — low or 0% introductory interest rates on balance transfers are popular — but, read the fine print: You may find that the terms change dramatically after the introductory incentive runs its course, and if you aren’t able to realistically pay off the balance you transfer by that time, the retroactive accumulated interest may make the option far less beneficial.
What options are available if no standard credit card approves you?
Unfortunately, recent graduates with no credit history or very low credit scores may find it impossible to get approved for a standard credit card using the factors described above.
Don’t worry, that doesn’t mean you’re doomed. There are two good options available for just this circumstance:
Credit repair
If your credit score is low, it’s quite possible it can be raised by working with a credit repair service.
These professionals can help you review your credit history, identify and eliminate any errors that may have crept into your report, facilitate any needed credit bureau dispute, and set you on the road to boosting your credit score.
Secured credit cards
A secured credit card requires a cash deposit that then serves as your maximum credit limit. In other words, you’re using your own money, so the lender isn’t taking any risk. But, since you’re using it in credit card form, it affects your credit score and report just like any other card would.
Obviously, there’s no real benefit to using a secured credit card once you qualify for a real credit card, but it can be a powerful tool in the meantime.
Which credit cards are best for recent graduates?
Taking all of the above into consideration, there’s still a tremendous number of choices to consider. Here are some sources you can trust with information on specific cards that measure up well for recent graduates:
For information about credit restoration and improving your credit profile, explore the Credit Repair Blog and our other educational resources around credit repair.
Carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.
Questions about credit repair?
Chat with an expert: 1-800-255-0263
