Credit Cards

How To Build Credit At 20

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 5 minute read

You’ll reap the benefits of boosting your credit in your 30s if you begin now. Whether you’re still in education, have student loans to repay, or are just trying to make ends meet as a young professional, the financial hardships of your 20s are real. You may not have given much attention to how your credit may affect the price of large items like a vehicle or a house since they seem entirely out of reach. It’s possible that your credit score is already having an impact on your life in ways you aren’t aware of.

Unless you want to spend the rest of your life eating ramen and sleeping on a futon, you need to start planning for a better financial future today. The greatest method to increase your financial security is to work hard to earn greater money and new chances for yourself.
Don’t worry if you have bad credit or no credit history—everyone begins somewhere! Building your credit score might take as little as 30 days, but there are several methods available.

It’s never too early to start establishing credit

When it comes to borrowing money, even if you don’t plan to do so in the near future, chances are you’ll need some kind of loan at some point. People with low credit scores are more likely to be charged higher interest rates when they take out loans. As a result, subprime credit holders are often charged higher interest rates by lenders.

In addition, a poor credit rating might prevent you from securing new loans or securing new employment. Landlords and employers, for example, may conduct credit checks on potential tenants and employees. Because a bad credit score might impede you from landing a job, you may not be able to earn the money you deserve.

Having excellent credit, on the other hand, may offer up a plethora of opportunities. With the right credit card, you may be able to tour the world or take out a small business loan to get your entrepreneurial career off the ground.

How to develop credit in your twenties: 6 approaches

Building credit early in life is critical if you want to succeed financially in your twenties. In addition to concentrating on your credit score, make sure you’re adhering to the best practices for budgeting and saving. Financial responsibility is the foundation of strong credit. You can quickly boost your credit score if you combine good financial habits with credit-building techniques.

Pay your bills on time

There are many factors that contribute to your FICO credit score—and missed payments are one of them. Utility payments, rent, credit card bills, and any other monthly charges from suppliers that report to the main credit agencies might be included in this category. To prevent late fines, you should always pay your rent on time, even if your landlord does not notify you of any missed payments.

Make sure you have enough money in your bank account before setting up autopayments so that you don’t miss paying any of your bills.

Learn how to use a credit card

Use your credit card wisely in order to raise your credit score. Credit cards for those with a less-than-stellar credit history do exist, which is great. Even if you have no credit history, you may be able to get a secured credit card provided you pay the credit limit in advance. You may get 2% cashback on purchases at restaurants and gas stations (up to $1,000 each quarter) with Discover it Secured, and you can earn 1 percent back on all other transactions.

If you don’t want to put down a deposit on a credit card, the Capital One Platinum Credit Card is a great alternative for you. A student with at least a 3.0 GPA can earn statement credits with the Discover it Student Cash Back Card.
The Capital One Quicksilver Cash Rewards Credit Card is an excellent choice for those with fair or superior credit because it has no annual fee. When you buy something, you’ll get 1.5 percent back in cash.

Make sure your credit card debt isn’t too high.

Another crucial component in determining your credit score is your credit utilization ratio, which assesses how much of your available credit you use on a regular basis.
If you frequently max out your credit card, lenders will be concerned about you, therefore it’s to your best advantage to keep your use low. In most cases, it’s recommended to keep credit usage around 30%.

If you have two credit cards with a combined maximum of $500, your total credit limit will be $1,000, and your recommended credit utilization will be $300 or less in the example above. Your credit score will rise if you don’t go above your credit limit and keep your debt below that amount.

Become an authorized user

Think about being an authorized user on a loved one’s credit card if you know them to be financially responsible, such as a parent or other relative. A credit limit will be established for you by the primary account holder, and when that account holder pays on time, your credit score will likely rise along with it. – However, if the principal account holder defaults on payments, your credit score may suffer, so pick someone you can rely on.

Consider a credit-builder loan

Credit-building loans are distinct from other sorts of loans, and as the name indicates, they are designed to assist borrowers to establish their credit. To begin with, the lender will place the money in a savings account that you specify. As long as you keep up your end of the bargain, you will be able to withdraw your funds at the end of the loan term. In the interim, you’ll be able to see your credit score rise as the lender reports your on-time payments to the credit agencies.

Because lenders don’t assume the risk involved with a typical loan, you may be eligible for one of these loans even if your credit score is less than stellar.

Keep tabs on your credit report

There are situations when inaccurate information on your credit report might have a negative impact on your credit score. One of your debts may show up in someone else’s records because of a reported missed payment that never occurred. Inaccuracies like this, no matter how small, can reduce your final score.

If you don’t keep an eye on your free credit report, you might end up with a bad credit score. Several free services are available to help you verify the accuracy of your report and the currency of your personal data. When it comes to boosting your credit, it’s never too early. While in your twenties, you have the opportunity to put yourself in a position of financial stability, save money on major purchases, and discover new career paths by using the tactics listed above.

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