How to Build Credit In Your 20sMay 6, 2022
You may not realize it yet, but your credit plays a huge role in your life. It impacts whether you can qualify for a mortgage or car loan, and some employers even check your credit before making a job offer.
When you’re young and just starting out, your credit history may be scarce, and you may have less-than-perfect credit. According to Experian, the average credit score for people between 18 and 24 is 679. That’s not a bad score; a score of 679 is in the “good range.” Ideally, your score would be 800 to 850.
Learn how to start building credit at 20 to improve your score.
7 Ways to Improve Your Credit Score During Your 20s
It’s never too early to start building your credit score. The earlier you start, the better off you’ll be down the road. Here are seven tips for improving your credit score during your 20s.
1. Get in the Habit of Monitoring Your Credit
Your credit score is calculated using information from your credit reports. You may be surprised to learn that errors on credit reports are common. According to a study by the Federal Trade Commission, one in five people had an error on at least one of their credit reports.
You can view your credit reports once per year at AnnualCreditReport.com. If you find errors or accounts that don’t belong to you, you can file a dispute online with each of the three credit bureaus:
2. Pay Your Bills on Time
When it comes to your credit score, the biggest factor is your payment history — it accounts for 35% of your score. To build good credit, make all of your payments on time.
If you have recurring due dates, such as your student loans or car loan payments, set up automatic payments so the money is automatically withdrawn from your bank account. Enrolling in autopay will help prevent missed payments.
3. Ask a Relative to Add You As an Authorized User
If you don’t have a credit history, it can be difficult to qualify for credit cards or loans on your own. One way around this problem is to ask a parent, relative, or friend to add you as an authorized user to one of their existing credit accounts.
As an authorized user, their account history will show up on your credit report, boosting your score. Just make sure you both set ground rules for how the card should be used, and make sure you pay what you owe in full each month.
4. Apply for a Secured Credit Card
Another option is to apply for a secured credit card. Unlike traditional credit cards, secured cards are specifically designed for people with poor credit or no credit. They require a security deposit — such as $500 — which serves as your credit limit.
If you use the card and make your payments on time every month, you can build your credit. Over time, you can also graduate to an unsecured credit card.
5. Keep Your Balances Low
When reviewing your credit, lenders want to see that you use credit responsibly. If your balances get too high, that makes them nervous, and it can affect your credit score. In fact, your credit utilization — how much of your available credit you use — determines 30% of your credit score.
Keep your credit utilization ratio as low as possible. If you can, pay off your balances in full every month and limit charges to prevent your balances from growing.
6. Consider a Credit Builder Loan
Credit builder loans can be excellent options for individuals that don’t have any credit history. Typically offered by credit unions, credit builder loans are relatively small loans — usually $1,000 or less. Unlike other loans, the lender deposits the money into a savings account you can’t touch until the loan is repaid. Typically, the loan is paid in monthly installments over six to 24 months.
As you make payments on the loan, the lender reports that activity to the credit bureaus. If you make all of your payments on time, a credit builder loan can increase your credit score.
7. Sign Up for Experian Boost
Experian is a free service offered by the credit bureau that allows you to get credit for paying your routine bills — such as rent, utilities, and streaming services — on time. When you sign up, you connect Experian Boost with the bank accounts you use to pay your bills. You choose what payments you want to share with your Experian credit file, and your positive payment history can boost your credit.
You can sign up for Experian Boost online.
Managing Your Credit
While figuring out how to start building credit at 20 can seem overwhelming, it’s not as complicated as you may think. The most important thing to do is to take an active role: review your credit reports, make sure you make all of your payments on time, and limit new charges to credit cards. Over time, you can build your credit and improve your credit score, and your hard work will help you secure lower interest rates on any loan applications.