Credit Building for Recent Grads

Building credit as a recent graduate, utilizing digital tools and financial instruments.

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Credit Sesame discusses the importance of credit building for recent graduates.

Using credit is a core part of handling your money in today’s economy. Credit can help you make ends meet week to week and build wealth in the long run. 

Even under the best of circumstances, recent graduates face challenges when it comes to getting and using credit. A combination of economic conditions is making it especially tough this year. 

It’s important for recent graduates to understand that building credit is not just about establishing credit. To build credit you need to use it the right way. Early mistakes with credit can plague you for years to come.

This guide takes you through the obstacles that today’s economy create, and show you a pathway towards credit building and using it successfully.

What to expect from today’s economy

Here are some of the economic conditions that make credit building in 2022 an especially tough time for recent grads:

  • High inflation is stretching paychecks to their limits – and beyond. Inflation in 2022 is the highest it’s been in more than 40 years. This makes it hard for consumers to make ends meet. A recent Credit Sesame survey found that roughly a third of Americans are spending at least 90% of their paychecks from week to week – which leaves little cushion for emergencies, savings or major purchases.
  • The possibility of recession could limit employment opportunities. The U.S. economy shrank slightly in the first quarter of 2022, according to the Bureau of Economic Analysis. There is concern that this weakness could develop into a full-blown recession. If so, recent grads would be likely to have a harder time finding a good job.
  • Rising interest rates make borrowing more expensive. People who are new to using credit are often charged the highest interest rates. With rates generally rising because of inflation, look for borrowing to cost more in the months ahead.
  • The moratorium on student loan payments is due to expire at the end of August. Recent grads may have more of a grace period before they have to start making payments, but this is a reminder that these payments are a financial responsibility many young adults start out with before their careers have even started.
  • Rising consumer defaults could make credit tougher to come by. A composite index of defaults on consumer debt payments has risen for six straight months. When more people are failing to make their payments, lenders become more cautious about who they lend to. That can be especially tough on young people who haven’t had a chance to establish a good credit record.

7 reasons why credit building is important

Credit comes in many forms. It includes credit cards, car loans and mortgages – all things you may find necessary or desirable in the near future.

The more you can prove your ability to use credit responsibly, the more access to it you’re likely to get. Here are seven reasons it’s worth the effort:

  • Credit gives you alternatives to using cash. Using credit can be safer than carrying cash around, and in some situations is the only option. 
  • Credit allows flexibility about when to pay. Sometimes, you need to pay for something over time or act on an opportunity without having to get the cash together up front.
  • Credit helps you make major purchases like a car or a home. Very few people are in a position to pay for big-ticket items without borrowing. That makes getting a loan essential for some things.
  • Good credit makes borrowing cheaper. Lenders make higher-risk borrowers pay higher interest rates. The better your credit, the more competitive your rates are likely to be.
  • Some landlords check credit when evaluating tenant applications. Especially in markets where rental vacancies are scarce, having good credit could make the difference between getting a good apartment or not.
  • Some employers use credit checks in their hiring decisions. Your credit history says something about how you handle your responsibilities, and whether you have problems that could be a distraction. Hiring managers find that kind of information useful.
  • Your credit score can affect your insurance rates. In many states, insurance companies are allowed to use your credit history as a factor in deciding how much your premiums will cost. That means good credit can save you money. 

Getting started: Credit building tips for recent grads

Young adults face a similar challenge when trying to get credit as they do when looking for a job.

With getting a job, the problem is that employers often want experience – but how do you get experience until someone will hire you?

When it comes to getting credit, lenders like to look at a person’s history of consistently making their debt payments. But how do you build that history unless someone will give you credit?

Here are some tips for getting started:

  • Try a secured credit card. If you can’t qualify for a conventional credit card, putting a deposit down can allow you to get a secured credit card. While this isn’t an ideal, it can let you start creating a payment history. That can lead to more credit opportunities being available.
  • Get an auto loan. Since auto loans use the vehicle as collateral, they tend to be relatively easy to get. If you need a set of wheels anyway, this may be a good way to jump-start your credit history.
  • Use your student loan payments as an opportunity to build credit. For sure, those payments are a burden. But look on the bright side. They mean you’ve already qualified for one type of credit. Now use those payments to show you can be trusted with other types of credit.
  • Always budget before you borrow. Getting credit is step one. Using it responsibly is what really matters in the long run. Having a plan for repayment before you borrow will help you avoid getting in over your head. 
  • Make a schedule of your income and due dates. Keeping up with your payments is as much about organization as it is about having the money available. Planning out your pay dates and when your bills will become due is a way of both organizing your payments and making sure money is available at the right times.  
  • Make sure money is available to cover automated payments. Automated payments can help you avoid missing deadlines, but you still have to keep track of your bank balance and payment schedule. That way you can ensure there is enough money in your account to cover those payments.

Used correctly, credit can make your life more convenient and open up opportunities for you. Just remember, your goal shouldn’t be simply credit building, but also to use it in ways that have long-term benefits.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.


Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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