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3 Ways for New Grads to Build Credit

As a new crop of college graduates enter the real world this spring, many of them will encounter this frustrating catch-22: to get credit, you often need to have a credit history. New regulations enacted by the CARD Act of 2009 limited college students’ access to credit cards in an attempt to protect them from overzealous credit card marketers. However, once college students turn 21, they can get access to credit even without an income.

Building a strong credit history can help you get the best interest rates on a car loan or mortgage and make you a desirable candidate for a rewards credit card. Here are three ways to get started.

1. Make timely payments on your student loans.

If you borrowed money for school, then you already have what’s called an installment loan. That means you’re charged interest for the money you borrow and repay principal plus interest over time on a set schedule. A car loan is another example of an installment loan. Make your loan payments on time as agreed and it will help build your credit history and show lenders that you’re responsible and creditworthy. Late payments will negatively affect your credit history.

2. Become an authorized user.

If you have a parent or other relative with good credit who’s willing to add you as an authorized user, that could help serve as a steppingstone to your own credit card, assuming that the person pays their bills. In some families, the authorized user’s name is simply added to the credit card for credit-building purposes, but the user doesn’t have access to the card. In others, the authorized user may have a card that they’re allowed to use in moderation so they can practice using credit. If you become an authorized user, make sure you discuss expectations with the primary card-holder to avoid any nasty surprises.

3. Get a secured credit card.

With a secured credit card, you pay a deposit as collateral to protect the creditor in case you default on your payments. Then you use the card as you would a normal credit card and pay the bill each month. Before signing up for a secured credit card, you should find out what fees are involved and if the issuer reports on-time payments to the credit bureaus so that you can build credit. The hope is that you would eventually graduate to an unsecured credit card and get your deposit returned after establishing a pattern of on-time payments.

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