I don’t know how many times I’ve said it, but credit is the single most crucial thing when it comes to being an adult. If you ever want to buy a house, own a car, rent an apartment, or anything else that functioning adults do, you need to have a good credit score. I only stress the importance of this because it’s the biggest life lesson that my mom would constantly repeat when I was a kid. Do you know how confusing it is to hear, “Don’t screw up your credit!” at thirteen. All I ever wanted to do was run outside and play ball. What does a thirteen-year-old know about credit?
So, now that you’re a 20-something year-old, here our top five tips to help you improve your credit score.
Tip 1: Start sooner rather than later
The struggle with getting a good credit score is that you need credit to get credit. Part of what impacts your credit score is how long you have had credit. It’s kind of like when entry-level jobs are asking for five years’ experience. It makes no sense. So like everything in your early twenties, we are all starting from the bottom. You have to find a card that works for you and start at the bottom level and slowly but surely grind away to build credit.
Tip 2: 30% Utilization
Just because you have a credit card limit of $2,000 doesn’t mean you should be using the absolute limit every month. The magic number to use is 30% which in this case would be $600. I’m not entirely sure why 30% is the magic number, but that seems to be the max amount you should have on your credit card after any given statement. And trust me, I know, none of us are made of money, and sometimes we have to use our credit cards for unexpected things. Just try your best to get it back down.
Tip 3: Monitor your credit
Watch your credit score. You don’t have to do it every single day. Most of the big credit report companies say to check your credit score at least once a year, but that seems to hold for people with a more established credit score. You should be checking your credit once a month, especially as you open new lines of credit. Your score will fluctuate quite a bit at first, rising and falling, but if you can keep track and be mindful of your score, you can start to effect change in the long run.
Most credit cards, and even debit cards, offer free credit monitoring. You can also use Credit Karma to monitor your credit for free.
Tip 4: Pay your bill on time
Five distinct categories determine your credit score. Paying your bill on time holds the most weight at 35% percent. Payment history is your record that shows whether or not you are suitable for the money you spent. If you have a lot of late payments, then it will affect your credit. This is why having paid-off loans remain on your credit report is so important such as student loans. It shows a history of on-time payments.
Tip 5: Hard Credit Inquiries
A hard inquiry into your credit occurs when you apply for a new credit card, car loan, mortgage, or some other form of new credit. While these won’t necessarily affect your credit individually; however, together in a short period, hard inquiries can take your credit down. Banks will look at the influx of hard inquiries as a sign that you are pressed for money and are considered a considerable financial risk.
The Bottom Line
Having a good credit score will make your life easier. You will save some money in the long run, while having a bad credit score is like playing life on hard mode. No one wants to pay more in loans because of high interest rates. I have friends who can’t rent apartments because of their credit scores. Some can’t qualify for a credit card, so they have to get a secured card which means they are putting their money upfront to secure a line of credit. And on top of all of that, improving your credit score from a bad one takes time. It’s like hitting the gym. Those first few months, you might see some significant changes because you are making a lifestyle change, but it takes more work to see improvement after a while. Don’t be discouraged. With some discipline and a little hard work, you can improve your credit score too.
If you want to read more on basic rules to follow with your credit card, check out our Commandments for Credit.