If you’ve recently graduated from school and are getting started in the full time workforce, you may have come in with some goals for yourself.
The most common goals are:
- To pay off student loans
- To start an investment account for retirement
- To purchase or pay off a vehicle
- To save up for a down payment on a house
The good news is that you can achieve all of those goals! However, they will take some time and a little bit of financial discipline.
Here are a few tips for recent grads on how to improve their credit so they can achieve their goals faster!
Tip #1: Make sure your payments are made on time
This sounds obvious, but paying your bills on time is so important to your credit that missing a single payment could hurt your credit.
If you’re not able to make a full payment, you will need to make a minimum payment. If you can’t afford a minimum payment, it’s better to call the lender and explain the situation to see if you can work something out.
Tip #2: Increase your credit limits over time
A big part of your credit score is your credit utilization ratio. Credit utilization ratio just refers to the amount of credit that you’re using compared to the amount of credit you have available. For example, if your credit card balance is $3,000 and your credit limit is $10,000, your utilization ratio is 30%.
If you keep your credit card spending relatively consistent, increasing your credit limit will decrease your credit utilization ratio.
It works even better if you pay off your balances every month, so your credit utilization ratio ends up very low as you increase your credit limit!
Tip #3: Take advantage of low or no cost financing to increase credit mix while not incurring unnecessary costs
This works much better when your credit score is a little higher, but if you want to improve your overall credit score, you will want to have a good mix of credit.
Credit mix just refers to the diversity of credit account types. Mortgages, credit cards, car loans, all of these are considered different types of debt.
If you’re able to take advantage of low or no cost car financing, for example, you could get a car loan that you can afford, with very little or no interest payments!
Tip #4: Refinance your student loans
This is a slightly different tip, as refinancing your student loans will DECREASE your credit score in the short run. However, getting your loans refinanced might be a huge help to you for the future.
If your interest costs are super high, refinancing your student loans might be able to lower the overall cost of the debt. This could save you thousands of dollars and years of paying down student debt, so you can achieve your goals faster. Not only that, but paying down your principal improves your credit score over time!
The Credit Pros wrote an article on student loan refinancing, check it out to learn all about how it works!
New graduates need to take advantage of as many ways to improve their credit as possible.
It’s paramount to be responsible with your credit. Responsibility just means paying your bills on time and not taking out debt you can’t afford.
Having access to credit while using it responsibly improves your credit rating.