Building good credit in your early- and mid-20s can be really tough to do, especially if you’re strapped down with student loan debt or have other major expenses, like saving for a wedding. The good news? There are lots of little things you can do no matter what early stage of life you’re in to prep for a super solid financial future. To get some foolproof advice on exactly what you can do to raise your credit score, we chatted up Andrea Woroch, a nationally recognized consumer and money-savings expert. Scroll on to take her amazing advice and you’ll be well on your way to a higher number in no time.
1. Make a budget and stick to it. Understanding what you can actually afford is always the first step to good money management habits and an awesome financial future. Though it can be super tough as a recent grad to be frugal, since you finally have a little bit of cash, sticking to smart spending is the first step to having great credit. Andrea agrees and says, “Ultimately, a new grad’s goal should be to pay down debt.” Of course, this definitely isn’t to say you shouldn’t treat yourself now and again — so long as you stay within your means.
2. Automate your payments. Having heaps of bills each month is stressful and even the most responsible person can mistakenly miss a payment. To avoid the chaos and stress, Andrea suggests taking advantage of companies that offer auto payment from a debit or credit card. “Setting up automatic payments for your monthly bills is a great way to stay on top of expenses — and you can earn rewards too,” Andrea says. “Though some utility bills might charge you a minimal credit card fee to process, the benefits outweigh the costs.” Mainly, your credit will never take a hit from a late payment.
If a company doesn’t have an auto-pay option, add an event to your calendar a few days before a bill is due to avoid missing it. Andrea swears by email and text message notifications for each new bill, since reviewing them right away will help you note any possible mistakes way before paying.
3. Keep a low credit card balance. Andrea tells us, “Maintaining a low balance will not only help you manage timely payments, but it also helps your credit score.” She explains that “credit card utilization rate” refers to the amount of money you charge on a monthly basis and is the number companies use to determine your creditworthiness. She says, “People who keep their utilization percentage low typically have higher credit scores than those who max out their credit cards constantly. As a rule of thumb, you should NEVER use more than 30 percent of your available credit.” Once you go beyond this percentage, your credit score will be negatively impacted. Andrea also strongly advises closing old accounts, because the length of your credit history plays a part in your score too.
4. Set up a loan repayment plan or request a deferment. It might be tempting to ignore student loan debt if you’re not making enough money to cover living expenses and high payments, but it’s among the WORST things you can do for your credit. Instead, Andrea says, “Talk with a loan provider. They’ll work with you on repayment options based on your personal situation. You might even qualify for a financial hardship deferment.” Phew.
5. Treat your credit card like it’s debit. Andrea suggests a simple switch in how you think, saying, “Treat your credit card like a debit card. What I mean by that is to charge ONLY what you have available in the bank.” She wisely tells us that by doing so, you’ll be able to pay off your balance in full each month and totally take advantage of card benefits and rewards without paying the fees.
6. Just say no to store credit cards. It’s hard to say no to phenomenal discounts and special perks for opening a store credit card, but Andrea tells us to avoid doing it at all costs. “Store cards come with extremely high APR, retroactive interest and limited rewards (if even offered at all), plus pricey late fees and other penalties. If you don’t shop at the store often, you might even forget about the new account and miss a payment — making that initial discount obsolete!” She also tells us that it’s harder to manage multiple credit accounts AND your credit score gets dinged each time you request a new line of credit. Yikes!
Her solution? Stick with one great card from a reputable, major company that offers cash back or travel points and use it to maximize rewards. She suggests looking for online coupons on sites like RetailMeNot or using free mobile apps like CouponSherpa for instant in-store deals.
What questions do you have about building credit? Tweet ’em to us @BritandCo!
(Photos via Getty)