If you’re a new graduate, you may well be taking steps to live independently, possibly for the first time. But wherever you find yourself, your post-college life will undoubtedly include a credit card. Maybe even two. You may already know some of the pleasures and pitfalls of plastic. But now's the time to get serious about when and how you use it. Managed responsibly, credit cards can help you build the kind of credit history that will make your life easier, almost from day one.

A stellar credit history leads to an excellent credit score. In turn, an excellent credit score will help you rent an apartment (and, perhaps, beat out other applicants who lack your excellent record), get a lower rate on a car loan and even save money on health insurance and, eventually, a mortgage.

Another reason to build a good credit history? A potential employer might scrutinize your credit report. A survey by the Society for Human Resource Management found that 47% of employers said they looked at credit reports of job applicants. Granted, they won’t see your actual credit score, but your credit report will show if you have missed payments or have an account in with a collection agency.

Fortunately, following a few simple rules about credit cards will put you on your way to building a great credit history. Even better: You’ll stay out of credit card debt.

#1: Know the rates and fees for your credit card

Yes, this means you have to read the fine print. The way to protect yourself from ugly surprises is to know the rates and fees your credit card imposes.

It’s a bit boring, for sure, but you’ll find nuggets of information that can keep you out of trouble. For instance, cash advances can have interest rates around 25%. What’s even worse, interest on cash advances kicks in right away. Understanding the terms of your card will help you avoid costly mistakes.

#2: Have a budget in place

Build a blueprint for how you want to spend your money and how much you want to save every month. When you have a budget, you know exactly how much you can spend on each category, such as groceries or entertainment.

A budget also gives you flexibility to decide how you’ll pay for an expense. Will you pay cash, use autopay from your checking account or use a credit card? The credit-card option is fine as long as you stay on budget and don’t spend more than you can pay off the next month.

#3: Track your spending

You can’t stay within your budget if you don’t know how much you’ve spent. This is where a lot of people lose their way.

You'll find many free online money-management programs, such as Mint.com, to help you track your expenses. There are also numerous smart-phone apps. The most important thing to remember? Once you hit your budgeted limit for a category, put away the cards. No exceptions.

#4: Pay your bill in full every month

This rule applies to all of us, not just new college grads. But now’s the time to make this a lifelong habit. When you carry a balance, you pay interest. Don’t fall into this trap because compound interest is painful. You could end up in credit card debt in a hurry.

These days, most new grads have student loans to pay back. Don’t make things worse by getting into debt with credit cards.

#5: Make timely payments

Late payments can wreak havoc on your credit score. The higher your score, the more it will drop if you have a late payment that is reported to the major credit bureaus. Do what it takes to remind yourself to pay your bills on time. This holds for all of your bills, not just the one for your credit card. Paying your electric bill late could also end up on your credit report and drag down your score.

Most of major credit card issuers offer ways to set up text or email reminders about due dates. If you’re using online money-management software or a smart-phone app, set up notifications. Some consumers prefer to use autopay from a bank account, but don’t set this up unless you know you will always have sufficient cash flow to cover the payments.

Rule #6: Don’t apply for a lot of credit cards right now

When you’re just starting out in your credit life, it helps to take things slowly. If you don't already have a second card, don't apply for one until you've successfully followed Rules 1-5 with one card.

It’s very easy to fall into debt when you suddenly have access to a lot of credit. Learning to manage a small amount before taking on additional cards is more prudent.

The Bottom Line

Follow the rules listed here and your credit life will be off to a good start. It's worth the effort because once you mess up your credit, there’s no way to fix it quickly. If your credit score takes a big hit, it takes about 12 to 18 months to rebuild your history and start boosting your score. That's one problem you don't need.

Related Articles
  1. Savings

    5 Worst Money Mistakes You Can Make In College

    Watch out for these costly mistakes while in school.
  2. Budgeting

    How College Lifestyles Affect Financial Success

    Students who save money and pay their bills on time will develop financially protective habits for their post-college years.
  3. Budgeting

    Budgeting While You're In College

    Test your money management skills as you work your way through university.
  4. Budgeting

    7 Personal Finance Tips For College Grads

    In two months, the first batch of 2011 graduates advance into life's next big experience - the real world.
  5. Credit & Loans

    How Credit Card Delinquency Works

    The more you understand about delinquency, the better prepared you'll be to handle it.
  6. Credit & Loans

    5 New Ways Credit Card Companies Are Wooing New Card Holders

    With new laws, credit card companies are forced to get creative to attract new customers.
  7. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  8. Personal Finance

    Money Matters on Campus: Attitudes & Aptitudes

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial instruction.
  9. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  10. Credit & Loans

    Bad Credit? You Can Still Get a Home Equity Loan

    If your credit history is less than stellar and you need cash, you may be able to get financing – but it will come at a price.
  1. Will my credit score suffer from debt consolidation or refinancing?

    You have several options for reducing your debt burden. You can enroll in a professional debt management plan, or consider ... Read Full Answer >>
  2. Can I file for bankruptcy more than once?

    Filing bankruptcy is never a simple decision, but sometimes it is the best thing you can do in your current financial situation. ... Read Full Answer >>
  3. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  4. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  5. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  6. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!