How to Get a Good Credit Score in Your 20s
If you’re in your 20s, now is the time to charge forward and work towards a good credit score. Far too few people in their 20s give any consideration to a credit score let alone the steps necessary to acquire credit. However, the foundation you build early on will carry on for the decades to come, from when you purchase a car to when you apply to rent an apartment.
Tips for a Good Credit Score in Your 20s
Ensure rent payments are on file
When you first start renting, encourage your landlord to sign up for electronic payments so that each of your rent payments will be on file. Do this even if you’re using someone like a parent to be your cosigner.
Turn on automatic payments
Sign up for automatic payments when you pay things like your electricity bill or your health insurance. By setting up automatic payments, you can avoid any type of late payment.
Pay bills on time
Following the second point, pay all credit card bills on time. A credit card is not meant to be used as a way to pay for things that you cannot afford. When you’re in your 20s, your interest rate on your credit card is likely to be very high. This is because you have little to no credit history. Don’t fall into the credit debt trap, which can quickly spiral out of control.
Use your credit card wisely
Use your credit card to pay for the things you would purchase anyway. One such example is to set up your regular bills like Internet, cell phone, or electricity. You can pay them with your credit card each month and then immediately pay your credit card bill that same month. This gets you double the credit, so to speak, because it shows that you paid your all your bills on time.
Beware of the fine print
Understand the fine print of your credit card. Make sure you don’t accept any additional services or fees that you don’t understand or want. If you aren’t 100% aware of what you are agreeing to, you might end up with $60 per month in service fees for services you don’t need. This is where many young adults get into trouble. They might leave the credit card in their pocket thinking that it’s something to save for a rainy day or an emergency. In such cases those regular monthly fees add up.
Create a budget
Create a budget, and stick to it. At a simple level, if you’re making more money than you’re spending, then you’ll be able to achieve a good credit score in your 20s. By having a budget, you can ensure that you’re always in the black, not the red.
Why establishing credit in your 20s is important
It’s important to realize why getting a good credit score in your 20s is a good thing. The other way to ask this question is: what happens if you don’t? This is detrimental in three ways.
The first is that you’ll miss out on the opportunity to build imperative credit. Usually when you’re in your 20s, you might have some in helping you out to get a car. Or, you live in student housing paid by your parents. In all these cases, you might fail to learn why your credit is important. However, once you no longer have a crutch to lean on like your parents’ wallets, your credit score will be used to judge your worthiness to take out loans or to rent a new place.
The second way that it hurts you is if you make mistakes. Many credit-based mistakes, like not paying credit card bills regularly and letting your credit card go to collections, will haunt you for 10 years. These “small” things can severely hurt your credit score when you set out into the real world and try to get your first car, or even get a job. Though it’s possible to repair your credit score, it’s much easier to avoid these mistakes in the first place.
Help your job search
The third way is that it can impact getting a job. Today more than ever before, companies check the credit score of the people they might consider hiring to determine if they are responsible. This is particularly true if you want to get any job related to finance. Even an entry-level position like that of personal assistant or legal secretary might task you with the responsibility of verifying different receipts, keeping track of payments made in a ledger, something which requires you to handle financial data.
Ultimately, it’s important to realize the seriousness of establishing a good credit score in your 20s. Even more fundamentally, you’ll develop solid personal finance habits that will carry you for the rest of your life.