Adulting is hard. You just graduated college, moved your stuff out of your parents’ basement, and your to-do list is over capacity. Add financial literacy to the mix, and it might feel like you’re drowning.
Up until now, FICO scores and APRs were nothing but extra text at the bottom of a bank statement. Credit is only something you have to deal with when you’re 35 and trying to buy a house for your family, right? Wrong.
If you own a credit card, have filled out a tax form for any job ever, or have student loans, then your credit score might already be in flux. Thankfully, you’re in the right place. We’re going to point out three common mistakes you might already be making, and how to fix them.
Not paying your student loan payments on time.
We’ve all been there. It’s easy to let those payment emails from Federal Direct Loan Program or Sallie Mae slip into your Unread mailbox along with email receipts and weekly college newsletters. But whether you forget, or your checking account has hit the single digits, the FICO algorithm won’t give you much leeway - late or missing payments will drastically reduce your credit score up to hundreds of points. If you’re struggling to keep up with your monthly payments, you should consider these two tips.
Ask your lender to defer payments.
If you know you won’t be able to complete a payment, just call your lender and ask if they can set you up with loan deference or forbearance. Most lenders are willing to extend your grace period, allowing you to suspend payments until you’re able to start paying again. It just takes a 15-minute phone call to give you some more breathing room.
Set up either a monthly reminder or turn on autopay.
If you have some unopened payment emails, the good news is that if the email was sent less than 30 days ago, you still have time to pay it off without letting it damage your credit score. Setting a monthly reminder or better yet turning on auto-payment helps stave off those late fees and any damage to your score!
Opening up too many credit cards… or not opening one at all.
If you don’t have a credit card, it’s time to open one ASAP.
For many, credit cards seem unnecessary - why would you need a credit card when you already have a debit card? The proper use of credit cards, however, is necessary to start building your credit score. Your credit score and history will ultimately determine whether you can qualify for a loan for a car or a house. You might even have trouble qualifying for apartment rentals without a healthy credit score. Think of your credit score as a way for lenders to figure out whether or not you’re financially trustworthy.
It takes time to build credit so it’s important to start as soon as possible. Look for one with a low annual fee, and a low ongoing APR so you can avoid extra costs down the road.
Consider opening more than one credit card.
Having too many credit cards is not necessarily a bad thing. If you’re good on prompt payments and stay under a ⅓rd of your credit limit, multiple cards could be helpful in boosting your credit score. However, carrying more than two cards is also a risk, because it means more payment deadlines to manage, and a greater chance you’ll make a mistake and get hit with a late fee.
Avoiding being financially literate.
Many young people today aren’t familiar with basic concepts in personal finance. Don’t be one of them. Becoming financially literate is equally or even more important than what you studied in college. Unsure about how much to invest in your 401k? Confused about credit utilization? Want advice on how to pick out your next credit card? Check out more of our blog posts to brush up on your financial literacy.