By Andrew Housser
As last spring's college graduates settle into first jobs, chances are that many also are learning to use their first credit cards. Getting your first credit card can feel like an adult rite of passage. On the plus side, having -- and using -- a credit line can put you on the road to building a good credit history. This, in turn, will make it easier in the future for you to qualify for a car loan, a mortgage, or a loan to start your own business.
Of course, if you misuse this credit -- such as by making payments late (or not at all), or maxing out cards -- the reverse can happen. Mistakes can stay on your credit report for up to seven years and lower your credit score. This score, which represents your credit risk, is based on several factors: your past payment history, total outstanding debt, length of credit history, and the types of loans and credit you have. As you gain experience using a credit card, set a goal to keep your score in the over-700 range. With that score, it is more likely that you will receive preferred rates on car loans and mortgages, as well as have better status when employers or landlords take a look at your credit.
Here's a look at five ways to maintain a healthy credit score.
1. Be careful when applying for credit.
It's tempting to sign up for several cards that offer rewards like cash back or airline miles, but applying for too much credit can have a negative affect on your credit score. In addition, these programs often beg you to spend more so you can reap the rewards, and can charge high interest and annual fees. Before applying for any credit card, compare rates and fees at sites such as CreditCards.com. 2. Use your credit wisely.
Don't run up charges you can't afford to pay off, max out your cards or skip a payment. Only charge what you can pay in full at the end of the month, and make sure to pay bills on time. Paying the balance in full each month is an excellent way to build a solid credit history, not to mention learning to live within your means.3. Become an authorized user.
Your parents can authorize you as a user on their credit card. The downside is that your parents are ultimately responsible for the charges you make (and, yes, they can see what you're spending and where). The upside is that your usage of the card (and not your parent's usage) is reported to the credit bureaus. That can start building -- or improving -- your credit score. Some people also benefit from knowing the folks are looking over their shoulders: It can help reign in excessive spending. 4. Stay on top of student loan debt.
If you find yourself struggling to repay your student loan after graduation, do not default! Look into your options, which include deferring payments for a short amount of time, making reduced payments, or reconfiguring your current payment schedule. Also consider consolidating multiple loans into one new loan. This often results in a lower monthly payment. Have the loan amount directly withdrawn from your bank account so you never pay late. 5. Check your credit score.
The Fair and Accurate Credit Transactions Act entitles you to a free copy of your credit report every 12 months from each of the three major credit bureaus: Equifax, TransUnion and Experian. You can request these reports online or via their toll-free numbers. You should regularly monitor your credit report to safeguard against identity theft and ensure there are no errors. If you find a mistake, send a dispute letter to the credit bureau requesting a correction or removal. Each bureau has 30 days to investigate and either revise the report or send a letter of explanation as to why the correction can't be confirmed.
Remember, your credit report and credit score affect more than your access to cash. Don't underestimate the effects your spending habits can have. Many businesses -- including potential employers, car dealerships, insurance companies, cell phone providers, utility companies and landlords -- use credit scores to determine whether you are a good credit risk. Your credit score also can affect how much of a down payment you need to make when renting an apartment or turning on utilities.
Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.