One of my most notable financial mistakes happened after I graduated from college. Surprisingly, it wasn’t my first student loan bill that came in the mail, or the fact that I had to adjust to living off an entry-level salary in a big city. For me, my financial struggle came from the misconception that my lack of credit history was going to set me back. After graduating with my Bachelor’s degree, I was able to pay off my student loans thanks to some savings I had from working over the summers in high school. While I was thrilled for being able to pay off my debt so quickly, I soon realized that was the only type of credit I have ever had.
When I went to check my credit score, I was discouraged to see my score fell somewhere in the lower 600’s. A small panic started tightening in my chest. Why didn’t I take out a credit card and start using it earlier in college so I would have great credit now? I didn’t understand that just because I had an average credit score now, didn't mean I was going to have an average credit score forever... and that I could work on building that over time.
I remember feeling as if I had to make up for lost time.I quickly called my bank in my hometown and asked them to send me a couple credit card offers in the mail. I decided to apply with Capital One, but due to my average credit score, they offered me an account with 24.9% APR. At the time, I really didn’t understand if this was a bad or good rate, I just assumed it was normal.
I quickly started charging purchases to the card. I went to buy some clothes at JC Penney, I bought a tank of gas, and some groceries. In my first month, I had charged about $83 to my card. Easy enough. I could get that paid off by the due date, no problem. I thought I had gotten the hang of this credit card thing.
It wasn’t until months later that I was out shopping and was being bombarded with the store credit card offerings –“Would you like to save 40% off your total order today by opening up a rewards card?” Who wouldn’t want to take advantage of those savings? The deals were almost too good to be true. Hook line and sinker, I took the bait. Had I read the fine print, I would have found out that the store credit card interest rates are sky high! And paying interest for materialistic things is not fun.
Since I was new to using credit cards, there were a few months where I wouldn’t pay my balance off in full, but I kept using the card. By only making the minimum payment, I was delaying the pay off by months, even years. It was at that moment I knew I had to take control of my credit card debt. I stopped using the cards every time I went shopping, and instead, tacked more onto my minimum payments to get the balances paid off sooner.
Going a little “overboard” with credit cards after college turned out to be a my biggest financial mistake. I was in such a hurry to establish and build my credit history when I truly didn’t understand how credit worked. If I had just used my first credit card for a few more years, (and paid it off in full every month), I could have built up a decent credit history without feeling the need to juggle multiple cards at once.
In fact, the age of your accounts makes up 15% of your credit score. If the average age of your accounts is not very long, it's just going to take time to build that up. The "age" of your account refers to when you initially opened the account. That's why it's important to not close your oldest account. This graph explains the different ranges that can effect your score. Don't be worried if you fall into the "poor" category -time is on your side with this one.
Knowing what I know now would have saved me a lot of worry and money, but it has helped me make smarter financial decisions. I may have learned the hard way when it comes to managing credit cards but behind every mistake is a hidden learning opportunity. I am choosing learn from my mistakes and not let my past define my financial future! In summary, you don't need to juggle multiple credit cards to build credit quickly. There is no need to panic! Your score will get better over time.
How much do you know about credit cards? Look at our website here to learn more! https://www.loaneducation.iastate.edu/credit#view-credit-score