How to Build Credit: A Guide for College Students and Recent Graduates

Consider these personal finance tips to help you succeed after graduating college: build a credit history, use credit cards positively, and invest to benefit your future self.

By Alison Rogers | American Express Credit Intel Freelance Contributor

6 Min Read | February 14, 2020 in Credit Score



In America, building a good credit history is the foundation of financial management.

Use credit cards positively to help strengthen your credit score.

Investing in your future self can help you achieve your long-term financial dreams.

Whether you’re a college student or a recent graduate, managing your finances has a lot of components. Here are just some of the financial next steps you might be thinking about:

  • Renting or buying a house
  • Managing credit cards
  • Starting to pay off student or auto loans 
  • Saving for a rainy day
  • Investing for long-term goals, like retirement.


Experts suggest it’s a good idea to narrow your focus: consider building credit, managing your credit cards wisely, and investing in your future self as three places to start.



Tip #1: Build Your Credit

Credit usage is basic to financial health. Just as you’re trying to eat right to keep your body healthy and in good physical shape, using your credit and your credit cards wisely helps to put you in good financial shape. That "shape" is reflected by your credit history, which shows your pattern of borrowing money and paying it back, and of paying your bills in a timely way. If you’re a college student, you may not have a very long credit history, but you want to start building credit as soon as you can. A good credit history can help you borrow money at better—that is, cheaper—rates.1


Your credit history is specifically measured by your credit score. Think of a high credit score like a good grade—one with lasting benefits. With a strong credit score, you may be more likely to save money on auto loans,2 a mortgage, even car or homeowner’s insurance.3 In addition, if you’re a college student or a recent graduate, potential landlords may want to see your credit score before agreeing to rent you an apartment.


Tip #2: For a Strong Credit Score, Use Credit Cards Positively

Credit cards are payment systems that create a debt that you are then obligated to pay later. In the United States, credit card usage is widespread, which may surprise you if you’re coming from a low-usage credit card culture. India, for example, has only around 52 million credit card users4 in a country of 1.3 billion people—only 4% of the population.5 However, card usage is so common in the U.S. that two-thirds of Americans have a retail credit card.6 As you build your finances during and after college, you’ll find that responsible use of credit cards may help you build up your credit history.


How to get a credit card

But how do you get a credit card as a college student, or if you’re otherwise new to credit? One way is by getting a secured card, where you deposit funds into a bank account as a guarantee against your spending on the card. You can also get a retail card, which allows you to spend, for example, at a specific department store or airline. Or you can become an authorized user, also known as an additional card member, on an established credit card holder’s account, thus drawing on their established credit history to help you build your own.


If you’re new to the U.S., use Nova Credit to access your established credit history from another country when applying for a new credit card in the States.


Focus on utilization and quality

Once you’ve started building credit, there are two important things to remember. First, the way credit scores are calculated, the utilization rate—the percentage of your maximum allowable spending that you spend at any one time—of your credit cards impacts your credit score. So when you think about responsible credit card use, consider not running up your spending on the card all the way to your borrowing limit. Using less than 30% of your debt potential may benefit your score.7


Second, focus on quality, not quantity, when you’re obtaining credit cards. Opening too many new accounts in a short span of time may lower your average account age, and thus hurt your credit score.8


Protect your card number

If you’re used to using debit cards, payment systems that take money out of your bank account whenever there’s a transaction, realize that credit cards offer more safeguards against fraud than debit cards do.9 But you’ll still want to keep careful track of the credit card itself, just as you would your wallet, your phone, and your keys.


Tip #3: Invest in Your Future Self

It can be tough to budget when you’re a college student or a recent college graduate, because there are so many calls on your income. You’re juggling your housing, health insurance, payments on your student loans and credit cards, transportation, food, and utilities. However, try to carve out a regular percentage of your paycheck for savings and investing. To do that, consider a planning system.


Take advantage of low interest rates to reduce debt payments

The Federal Funds rate, an interest rate at which banks lend money to other banks overnight, is currently at a historic low. At the end of April 2020, the rate, which has a historic average of 4.75%, was at 0.04%.10 You could check to see if converting your government-backed student loans to a private lender may result in a lower interest rate. Bear in mind that you might be trading off protections such as loan forgiveness.11


Depending on the field that you go into—if you choose teaching or work for a nonprofit, for example—you may be able to get some of your student loan balance deferred or even cancelled, so consider that as an option as well.12


Once you have your debt obligations defined, you can make a budget. This type of planning may help you build credit and de-stress. One popular rule of thumb is to spend 50% of your income on necessities and 30% on your lifestyle, while using 20% of your income to pay down your debts, save, and invest. In a high-cost-of-living area, those can be tough guidelines to adhere to, but it’s a least a framework for thinking about budgeting.13


Thinking About Future Finances and Beyond

When you have your savings target defined, set up automatic transfers from your checking account to a savings account to make savings as painless as possible.


If your work offers a 401(k) plan, that can allow you to save for retirement in a tax-deferred way.14


Some employers also offer matching contributions to employee savings; that’s a benefit to take advantage of, if you can. If you are a self-employed gig worker, look into a Solo 401(k) plan. In addition, you can consider an Individual Retirement Arrangement (IRA). This retirement guide can help you understand the differences between the various types of retirement savings plans.


Finally, don’t forget to invest in yourself beyond finances. Take care of your body physically by eating and sleeping well, and take care of your mental and spiritual health by connecting with friends and your community. Consider your education to be life-long, and stay on top of research and developments in your field.


The Takeaway

Gaining control of your finances as a recent graduate may seem daunting, but you can do it. Focus on building and strengthening your credit score, which is a foundation for meeting many of your financial goals. Develop the habit of careful planning, which can help you meet your immediate obligations while also working towards long-term goals.

Alison Rogers

Alison Rogers has written about finance and personal finance, with a specialty in real estate, for a number of national publications and Fortune 100 companies. She lives in Manhattan.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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