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Building a Good Credit Score after College

by Barbara Marquand

Aside from a tough job market, new college graduates also face a challenging credit landscape this year. Credit tightened in the recession, and a recent survey shows bank executives don't think creditors are ready to relax their grip yet. The survey, conducted on behalf of FICO by the Professional Risk Managers' International Association, asked bank risk professionals for their predictions in consumer credit trends. Most expected credit limits for new credit cards to be lower than in the past and predicted a similar or lower acceptance rate for credit card applications.

So if you're a new graduate, how do you build a credit history if you can't get credit in the first place? It's a little like trying to find your first job when every employer will only interview applicants who have experience.

Here are some tips to get started:

Be prudent.

"Don't be a kid in the credit candy store," advises the National Foundation for Credit Counseling. Each time you apply for credit, an inquiry is made on your credit reports, and too many inquiries can lower your credit score. If you apply for too many credit cards and loans all at once, lenders might think you are desperate. You only need a couple of credit cards -- one for primary use and one for backup. It's hard to keep track of payments, and it's easy to overspend if you have too many credit cards.

Think variety.

You need three lines of credit to have a thick enough credit file for credit scoring, the NFCC says. Your credit score benefits from handling different types of credit well, such as credit cards, which are revolving credit accounts, and closed-end accounts, such as car loans.

Get a co-signer or secured credit card.

Can't get a loan or a credit card on your own? Consider asking a parent to cosign for you. Be careful, though: Your handling of the account impacts both your credit scores. Or get a secured credit card, which requires you to maintain a savings account to act as security in case you default. Your credit limit is equal to or is a percentage of the savings account balance. After you handle that account well for six months to a year, you might then qualify for an unsecured credit card.

Once you've established credit, handle your accounts responsibly to build a good credit score. Pay your bills on time, and keep your credit card balances below 30 percent of your credit limits.

Published 08/23/12 (Modified 07/09/14)

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