Building Up Credit As A Young Adult
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Building Up Credit As A Young Adult

Building up your credit is an important first step to renting an apartment, purchasing a car and achieving other milestones in your life but, establishing a good credit score and history takes time.

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a person holding credit cards against a white background
Photo by Avery Evans on Unsplash

Building up your credit is an important first step to renting an apartment, purchasing a car and achieving other milestones in your life. However, establishing a good credit score and history takes time.

The key is to build good habits early. That way, you can reach all your financial and personal goals later in life.

Here are some ways you can build your credit as a young adult.

1. Get a Secured Credit Card

Consider applying for a secured credit card. Secured credit cards are much easier to obtain than unsecured credit cards. That’s because secured credit cards require a security deposit, which turns into your credit limit.

If you use a secured credit card responsibly, you can increase your chances of obtaining an unsecured credit card and build your credit even further.

2. Pay Your Student Loans

If you have student loans to pay, your lender will report your payments to credit bureaus. While you might decide to defer your loans until you finish school, paying them on time can help you build credit.

Plus, it helps to keep the interest down once you start paying your balance in full each month.

3. Always Pay Your Bills On Time

One of the most important things you can do to build your credit is to pay your bills in full and on time. Late or missed payments can reduce your credit score, which can remain on your credit report for many years.

It’s also ideal to pay it monthly to avoid interest charges. Yet if you can’t pay in full, it’s best to pay the minimum amount to help you save on interest in the long run.

4. Keep Credit Card Debt Low

When your goal is to boost your credit, the best way to achieve this is by keeping your debt at least below 10% of your credit limit. The general rule is to keep it below 30% at all times, but keeping it lower than that is even better.

So suppose you have a $5,000 credit limit. It would help if you tried to keep your debt under $1,500. Even when you can’t pay your balance in full each month, keeping your debt as low as possible is the best practice.

5. Get a Credit-Builder Loan

A credit-builder loan can help you establish a credit profile. You can typically obtain one through a credit union or community bank.

To receive these types of loans, you must be a customer and have proof of income. Once you get approval, the lender holds the money and releases it back to you as soon as you fully pay it off.

Common Credit Mistakes Young People Can Avoid

Building a good credit score isn’t as difficult as it may seem. However, younger people tend to make these mistakes that set them back. To avoid making the same mistakes as others, here is what you shouldn’t do:

  • Miss payments: Make one late payment on your credit card, and you can negatively impact your credit score. One way to avoid this is by setting up an automatic payment, so you don’t forget to pay on time.
  • Closing accounts prematurely: If you close an account that still has a balance, ensure you pay off the rest. Leaving the balance unpaid can result in a debt collection, affecting your credit score.
  • Establishing too much credit card debt: Sometimes, young people tend to spend more than they can afford to pay each month. Eventually, this leads to interest charges and a high balance, which harms your credit. Consider treating your credit card like a debit card and using it for purchases you can afford to pay.
  • Submitting one loan application after another: When you apply for a loan, the lender requests a credit report — a hard inquiry report. Each time the lender does a hard pull on your credit report, this lowers your credit score. Therefore, it’s best to be cautious when submitting applications for a loan.

Start Building Your Credit Today

You may realize how important it is to build a good credit score and history. The earlier you start, the better it is for you in the long run. Take the first step by deciding which accounts you will open today. Just be sure you can afford to make payments on time and that you monitor your progress regularly.

Once you have started your journey to building good credit, you’ll be on the road to more financial freedom.

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This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.
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