New Grads: Should You Choose Debit or Credit?
Congratulations! Graduating from college is a big step in life that takes a lot of dedication and hard work. These good habits can also be valuable when applied to your finances. While some rely heavily on their debit cards, credit cards can play a big part in your financial future when used responsibly.
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When you graduate, your finances graduate too. You may find yourself suddenly managing a bunch of new expenses while you start to pay down student loans. You’ll likely look at budgeting and saving in a different way, probably with some major financial commitments in mind, like buying a car or finding a home or apartment.
To make that future a reality, you’ll need to build a credit history and earn a good credit score.
A high credit score means you may be eligible for a new credit card with a low interest rate and great rewards. That’s because lenders are more likely to offer good deals to people with high scores.
One of the ways to build your credit history is to use a credit card. When you make small purchases on a credit card and pay those bills on time, you may help build up your credit score. Keeping the number of credit cards you own low and staying well within your credit limits may also help you improve your credit score.
But how can you qualify for a credit card while you’re still in college or just out of school? The answer may be easier than you think. Here are three options:
1. Consider a Student Card.
These lower credit limit cards are designed for students who are just learning about credit and may not have a regular income yet. Some student credit cards even come with rewards, such as cash back for gas or grocery purchases. Despite lower credit limits, student credit cards are real credit cards, and can still be used after you graduate. Your spending activity is reported to the credit agencies and from day one you begin building your credit history.
2. Consider a Secured Card.
You can get a secured credit card by depositing a lump sum of money with the bank issuing your card, say $500, which usually becomes the maximum limit on your card. This works well for people who do not yet have regular income or who are trying to repair a problematic credit history. A secured credit card works just like a traditional credit card in that your payment activity is reported to the credit agencies and you start or continue to build your credit history.
3. Consider a Traditional Credit Card.
Even if you’re just starting out in your career, you may find you qualify for a credit card. That’s because credit issuers generally look at four main factors when evaluating an application. Income is certainly one of them, but they also look at your credit experience, debt picture and credit score. You may find, you qualify for a card with a low credit limit at first, but over time as your income increases, you’ll be able to increase that limit.
The important thing to remember: you’ll need a combination of financial tools available to you as you enter into your new life as a new grad.
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