Thrifty Thinking: What Every College Grad Needs to Know About Credit

When it comes to credit score, there's no such thing as throwing out the lowest test grade or offering a chance for extra credit. That's why college students need do their homework early on so they can pass the credit test during those vital first few years in the "real world."

The first rule of credit: Use it or lose it.

In other words, in order to create a strong credit profile (and qualify for future auto or home loans), you have to demonstrate that you're able to use credit responsibly. You'll likely have to start out slow, like opening your first credit card account, making small but manageable purchases with it, and paying your bill on time every month. From there, whether you have an auto loan or a cell phone bill, the key is to make on-time payments.

You'll have to pay your dues.

As is the case with breaking into a new field right out of college, sometimes your youth goes against you and you have to prove yourself. In other words, you won't get the best credit card rates in the early years of your credit history because you haven't earned them. But you can and should still shop around for a card that has terms you can live with for a while (for starters, look for cards with no annual fee). The reason being you want to keep your first major accounts active for a few years to establish a strong history. Opening and closing new accounts all the time will negatively affect your credit score.

Don't screw up your parents' credit.

If your parents put you on as an authorized user on any of their accounts or co-sign to help you open a credit account or car loan, that's an additional reason to be responsible with payments. If you don't, it will ding their credit scores as well as yours.

Late payments are not “no big deal.”

As soon as you are late -- even one day -- on a credit card payment, your lateness is reported to one or all of the credit bureaus (Equifax, TransUnion, and Experian). The longer it takes you to pay, the worse it is (being 90 days overdue is worse than 30 days, for instance). To avoid being late, be sure you don't spend beyond your means, and set an email, text, or calendar alert so you have a reminder to make your payments on time.

Minimum payments will keep you in debt for decades.

Paying your bills on time is the easy part; paying your balance in full is the challenge. If you run up your accounts and begin carrying large balances, paying just the minimum won't do much to bring down your debt thanks to interest that keeps accumulating. And when it comes to credit scores, how much debt you have as compared to how much credit you have available is a big part of the equation. So if you have a $1,000 credit limit and a $700 balance, you have a 70 percent debt utilization (not good!). Experts say to keep it under 30 percent, or even better, pay your balance in full each month.

A healthy credit start takes discipline, especially for college grads who are just beginning to deal with financial independence. But it's a much easier road than trying to dig out from under a credit score that tanks.

Todd Hills is the CEO of Pawngo , the first full-service online pawn shop in the United States. After more than 25 years owning and operating brick and mortar pawn shops, Hills decided to bring this 3,000 year-old industry online. In 2009, he launched a successor to “Internet Pawn” called Pawngo based in Denver, Colorado. Hills got his first job at a pawn shop in 1985 before opening his own shop in 1990. Seven years later Pawn One was established. Pawn One was able to expand to 18 different locations by the year 2004 before he sold 15 of them to a public trading company. Hills goal was to take the pawn shop business to the next level, which was accomplished in 2009 when he launched Internet Pawn, the first online pawn shop in the US. Hills continued to grow the business and re-launched the company in 2011 as Pawngo with Lighthouse Bank as its main investor.