Currently, college graduates may be in tough positions to get a handle on their financial security soon after they leave school. Between financial obligations and the job market for those with little real-world experience remaining quite tough, getting up on one's feet isn't always easy, but there are some steps to take to help make the transition a little easier to handle.
Young adults who want to get off to a good start financially will have many options to do so, but at the same time, these have to be approached rationally and methodically. One of the first things which it might behoove a recent college graduate to pursue is trying to repair the credit they might have damaged during their time in school, whether it was a lot or a little.
How to get started
The first thing a college student should do when they want to start rebuilding their credit score is order a copy of their credit report as a means of determining all the accounts in their name and figuring out where they stand with each. If any of these accounts have slipped into delinquency or even default, the credit report will show this, and that can inform many decisions about how to proceed.
In general, college graduates will have a number of different accounts in their names, but the most common are likely student loans, credit cards, and perhaps auto financing. Examining the standing of each of these accounts will go a long way to determining where to begin their credit repair efforts, and if there are none that have fallen behind on payments, then this indicates that the borrower may generally be in good financial shape. Payment history accounts for 35 percent of a borrower's score, so making sure all accounts are current, and have been for several months or more, is of the utmost importance.
Another 30 percent of a person's credit score is made up of the amount of debt they're carrying versus what they are allowed to borrow based on their various accounts' credit limits. This means that the more they borrow above and beyond the 30 percent of a limit lenders like to see, the lower their score will be, and younger borrowers who are less experienced with credit cards may be more susceptible to such missteps. Therefore, taking the time to reduce outstanding balances with larger payments is similarly extremely beneficial.
Other areas in which young people can improve their credit standing include increasing the number of different types of credit in their name, letting the average age of their accounts increase slowly over time, and avoiding applying for more than a few lines of credit within a period of the previous several months. While the first option may be generally dichotomous with the latter two, making decisions about borrowing should come only after lengthy consideration.
Why this is important
Taking the time to repair credit in general can be a huge boon for recent college graduates for a number of reasons. First, it will likely help them to find more affordable credit down the line when they need it, including better interest rates and fees, and access to accounts with more rewards if they so choose. Further, many landlords and even employers now take credit standing into account when making decisions about letting new tenants move in and hiring employees.
Whether it's fair or not, the unfortunate reality for many college students is that in general, employers don't want to hire many young people with limited work histories these days. Because unemployment is still somewhat high, employers can be picky about whom they hire, and that might put many young adults at a disadvantage when compared with those who may have been in an industry for years. On top of that, having an iffy credit report working against them can likewise be harmful. Though a number of states have already outlawed the practice, many employers in other areas still use credit reports to determine whether to hire applicants, because they believe it can be predictive as to whether a person is generally trustworthy and responsible. As a consequence, having a clean credit report will not only help young adults have a generally better financial standing going forward, but also put them in a better position to get jobs they may want.
Another reason it's a good idea for consumers to order copies of their credit reports is that doing so will likely also allow them to determine whether there are any unfair markings on these documents which might be having a negative effect on their ratings. If any of these entries are discovered on the reports, working with a credit repair law firm may be able to help them clear up the issue and return their credit scores to where they deserve to be.