Soon-to-be college grad seeks adult plastic
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I am a soon-to-be-graduating
college student. When I first arrived on campus three-and-a-half years ago, I
got a student credit card with our credit union. Its balance has been paid in
full every month since then. But now that I'm entering the real world, I am
looking for two to three credit cards that offer varying rewards and other
favorable terms, and want to cancel my student card once I get those. Assuming
that I will continue to make payments in full each month, what is the best way
to go about this without harming my credit score, or at least having the least
negative impact due to new accounts and the closing of my old one? Thank you
for your advice! -- Alexander
I'm impressed! Not only
do you possess a formal education, you've also got natural common sense. Since
you're in college, I'm assuming that you're in your early 20s -- and it would
be great if more young (and not so
young) adults could be similarly motivated.
You have already
established a credit history with your student card, which puts you ahead of
the game. Everything you've done with that account -- from the highest balance
you've ever held to the way you've made your monthly payments -- has been
listed on your consumer credit reports since the day you opened it. Because
you've done well, that data will stay put, too. Unlike most negative
information that will eventually be deleted, positive information can remain on
a credit report indefinitely.
In general, it's a smart
idea to keep such perfectly managed accounts active. Length of credit history
comprises 15 percent of your FICO credit score. Though it's
less critical than your payment pattern (35 percent) and how much outstanding debt you're carrying
(30 percent) compared to the amount you can borrow, it does push the numbers up.
Additionally, a long relationship with a bank looks attractive to other
lenders. For these reasons I suggest hanging on to it and using it occasionally, even after you get your
To know which accounts you'd
be eligible for at this stage, pull your credit reports and scores to see where
you stand. The reports are available for free once a year from each of the top
three credit bureaus (Experian, Equifax and TransUnion) on AnnualCreditReport.com,
and you can purchase the FICO scores from its website, myFICO.com, for about
Read your reports
carefully to make sure everything is correct. If they're not and you spot
something such as a balance that's too high or an account that's not yours,
your scores might be lower than what they ought to be. Correct errors via the
dispute process on one of the bureau's websites as each is obligated to report
the dispute to the other two.
All clear? Check out the
credit cards that are offered to people with FICO scores in your range. The
very best products will be available to consumers with score numbers in the 750
and higher range. Be aware, however, that even if your scores are considered
excellent, your income will also be assessed. If yours is nonexistent or low,
it will be hard for a lender to have confidence that you can repay what you may
charge. So if you're aiming for the most premium of plastic, work on securing a
well-paying job before applying.
Once you do get your
dream cards (such as an airline rewards card with a big promotional bonus for
signing up), charge as smartly with them as you have with your student card.
Then, if you really want to cancel your starter card, you can. Closing it will
reduce your score, but with the positive activity you've started with the newer
accounts, it shouldn't go too low and those digits will rebound quickly.
On a final note, each
time you apply for a card, the issuing bank will check your credit, which is
called a "hard pull," and may temporarily ding your score each time
you apply for a card. To avoid multiple dings, only apply for those cards that
you are fairly confident you will be accepted for. And if you are rejected,
wait several months before applying for a new card -- allowing your credit
score time to recover between applications.
See related: 5 credit score secrets of the young and FICO-savvy, Good credit history doesn't go away when card is canceled
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: February 27, 2013