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With graduation season right around the corner, the class of 2021 is gearing up for what their lives will look like post-college.
As they prepare to enter the workforce, this period is a significant time marking the start of their careers. For new grads, it’s also an opportune moment to make sure they start off on the right financial foot. The money moves you make in your younger years can have a huge impact on what your personal finances look like for years to come.
For grads-to-be, here are two things you should do with your money to help you build a strong financial foundation.
Spend your money wisely using a starter credit card
The purpose of a starter credit card? To help you build credit.
Your credit history — or the length of time you’ve had credit — makes up 15% of your credit score. So, the earlier you begin building credit, the better.
A good credit score will help you qualify for an apartment, as well as get the lowest interest rates on a new car loan or a future mortgage.
Recent grads who have a very short credit history (or none at all) should consider opening a starter credit card, also known as a secured credit card. Similar to using a traditional — or unsecured — credit card, a secured card allows you to charge purchases against your credit limit and then you pay your balance off in full each month when your bill arrives.
The big difference between secured and unsecured cards, however, is that the former typically requires cardholders to make a security deposit upfront (usually $200) that is equivalent to their credit limit. This deposit acts as a form of collateral in case the cardholder doesn’t pay their bill each month, which is why they’re great for beginners as they learn how to use credit responsibly.
Below are Select’s three top-rated credit card picks for recent college grads:
- Best card for no credit: Petal® 2 “Cash Back, No Fees” Visa® Credit Card
- Best card for bad credit: Capital One® Secured
- Best card for fair and average credit: Capital One® QuicksilverOne® Cash Rewards Credit Card
Petal® 2 “Cash Back, No Fees” Visa® Credit Card
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Rewards
1% cash back on eligible purchases right away and up to 1.5% cash back after making 12 on-time monthly payments; 2% to 10% cash back from select merchants
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Welcome bonus
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Annual fee
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Intro APR
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Regular APR
12.99% to 26.99% variable
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Balance transfer fee
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Foreign transaction fee
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Credit needed
Capital One® Secured Mastercard®
Information about the Capital One® Secured Mastercard® has been collected independently by CNBC and has not been reviewed or provided by the issuer of the cards prior to publication.
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Rewards
This card doesn’t offer cash back, points or miles
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Welcome bonus
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Annual fee
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Intro APR
N/A for purchases and balance transfers
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Regular APR
26.99% variable on purchases and balance transfers
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Balance transfer fee
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Foreign transaction fee
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Credit needed
Capital One® QuicksilverOne® Cash Rewards Credit Card
Information about the Capital One® QuicksilverOne® Cash Rewards Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
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Rewards
1.5% cash back on all purchases
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Welcome bonus
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Annual fee
-
Intro APR
-
Regular APR
-
Balance transfer fee
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Foreign transaction fee
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Credit needed
You can also build credit by paying off your student loans
Student loans are a type of installment credit (similar to car loans and mortgages), which means they show up on your credit report. The good news is that paying your bill on time each month will help your credit since your payment history is the most important factor in determining your score.
Graduates with student loans typically have a six-month grace period before they have to start repayment. After you begin paying your student loans, it may take a few months for them to appear on your credit report. You can pull your credit report for free from AnnualCreditReport.com to see your student loan balance and monthly payments so you know where you stand.
Save your money in a retirement account
Yes, it’s never too early to start saving for your nonworking years.
For recent college grads who score a job that offers a 401(k) plan with matching contributions, make sure you prioritize putting your money toward it, says Brian Walsh Jr., Pennsylvania-based senior wealth advisor at Walsh & Nicholson Financial Group. Otherwise, that’s free money you’re leaving on the table. If you can’t afford to meet the match, work your way toward it each year by upping your contribution by 1%.
Most companies offer two types of 401(k) options: pre-tax and post-tax. “For someone just graduating college, chances are you’re in a very low tax bracket and should take advantage of a post-tax or Roth 401(k),” Walsh says. “This will allow you to pay tax on contributions today at lower rates, rather than at higher rates in the future.” Contributing as much as you can to a Roth 401(k) now means paying less in taxes in retirement.
For those recent grads whose first job doesn’t offer a 401(k) plan or a post-tax option in your 401(k), Walsh recommends opening your own Roth IRA account to ensure you are putting away a portion of your paycheck for retirement and getting the same tax benefits.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.