Carving out a place for yourself in the world as a young person is no small task. Between starting a career, finding a place to live, and creating the life you want for yourself, building a strong credit score is likely the last thing on your mind.
The fact of the matter, though, is that good credit is an important stepping stone towards adulthood. Whether you’re buying a house, car, or other large expense, your credit score is going to be one of the primary determining factors of what terms your loan will be on — if your score is high enough to get one at all.
Jumping into the world of credit scores and loans can be overwhelming, but don’t worry: focus on just a few key things, and your score is bound to be on the up and up. Here’s what you can do to get started:
1. Use credit cards — wisely.
Credit cards are themselves built on financial trust: the companies that provide your card operate on the assumption that you’ll pay back what you borrow on time and in full. Because of this, credit cards are an important part of building your credit, and getting one of your own is easier than ever. You can now get a credit card for no credit whatsoever, starting you on your way to a healthy credit score with as few barriers as possible.
The key to healthy credit card usage is regularity and frugality. With each credit card comes a credit limit — the amount you’re allowed to spend each billing period — and you should always try and spend well below that number. This will show credit reporting agencies that you’re capable of paying regularly, on time, and within the boundaries set for you. Behaviors like those are the foundation of a good credit score.
2. Get your own phone plan.
For many young professionals, this is a given: once you get old enough to earn an income, you graduate from your parents’ phone plan into your own. This move can also be big for your credit, too: getting a phone plan in the first place often requires a credit score check, so applying alone can give you a good sense of where you’re at. Beyond that, anything that requires recurring monthly payments will look good on a credit report. A good credit score is a passport towards financial independence, but you’ll need to establish a bit of independence on your own first — a phone plan is a great way of doing just that.
3. Find an apartment in your price range.
Think of paying rent as a step up from paying your phone bill: it’s a recurring payment that looks good to credit agencies, sure, but the expense involved is likely a few steps higher than a cell phone plan.
Almost all property owners will require a credit check before they allow to start renting, so consider it another opportunity to know exactly how far your credit will take you. Very few property letters, however, will actually notify credit reporting agencies that you pay your rent in full and on time. Make sure you regularly update this data yourself, as doing so will increase your score provided that you’re in compliance with the terms of your lease.
4. Pay student loans on time.
With 54% of young Americans now needing to take out student loans in order to attend college, so odds are that there’s a balance you’ll need to pay off before you achieve complete financial independence. Loans like these are often the first major debt that a young person takes on, so the way you handle yours can have an outsize impact on your credit score down the road.
It’s a given that you need to make your loan payments in full and on time, but going a step further can have significant impacts as well. Make your payments as frequent as possible, and always try to pay more than the requested amount. Even if it’s just a few dollars, paying off your loan at an accelerated rate is like music to credit bureaus’ ears. By emerging from your student debt intact, you’re showing just how much you’ll be able to handle in the future.
5. Keep track of utility bills.
Utilities are other recurring payments that show your ability to pay on time and in full. As with rent, your utility companies are unlikely to report your payments to credit agencies, particularly if you live in a rural or underdeveloped area. Keep track of all these utility bills and be sure to be able to show that you pay them all regularly and responsibly. Forward that information to credit agencies and watch your score go up in turn.
6. Get a credit builder loan.
If you’re looking for a quick and easy way to boost your credit score with minimum financial burden, consider applying for a credit builder loan. Credit builder loans are essentially payments you make to your lender over the course of one or two years; once you’ve finished making the payments, you get the money back.
Your lender reports these on-time payments to credit agencies, demonstrating your ability to handle debt effectively. You don’t lose any money in the process, and your score has the potential to see major improvements. Young professionals with unreportable credit scores or credit scores of 0 are particularly likely to see benefits from these kinds of loans.
It’s never too early to start developing a strong credit score. By taking smart steps early on, you can lay the groundwork for larger moves later on.