According to a report published by Experian at the end of 2013, young adults ages 19-29 had an average credit score of 628 — more than 50 points lower than the national average and the lowest of all the age groups. If you’re a millennial, maybe you’re trying to avoid debt like the plague by staying away from credit cards. Or maybe you rely on a credit card when money is tight, but you have trouble keeping up with the payments. Either way, your credit score might be hurt.
Your credit (or lack thereof) might affect you in the near future more than you realize. Banks, credit unions and auto dealerships decide whether to do business with you based on your credit history. If these guys don’t trust you enough to give you a loan, you might be unable to make big purchases such as a home or a car.
There is good news, though: Your credit is constantly evolving. In fact, any time a lender requests your credit report, a new credit score is created with that report. While your credit can be improved at any time, you have to put in the effort to build a strong credit history.
Here’s how:
Pay All Your Bills on Time: A good payment history can be a large factor in determining your credit score. If creditors report just one late payment (30 days past due), that’s enough to ding your score.
Never Ditch a Phone Plan or Utility Bill: While cell phone plans and utility accounts do not routinely report your on-time payments to the credit bureaus, they can report a default. That default can stay on your credit report for up to seven years.
Monitor Your Credit Score: Depending on the credit monitoring site you choose to use, you can access your different credit scores for free or for a fee.
Improve Your ‘Credit Utilization Ratio’: To improve your credit utilization ratio, increase your available credit either by paying down debt, getting another credit card or having your credit card limit raised. This can improve the ratio between how much credit is available to you compared to how much credit is used.
Make Small Purchases on a Credit Card: The smaller the purchase, the more likely you can pay it off before the payment due date. This can keep your credit utilization ratio low while establishing a good payment history.
Build an Emergency Fund: An emergency fund, which can simply be a savings account, can help you stop relying on credit cards for unexpected expenses. This way, cash will be available for life’s little emergencies such as a car breakdown or unforeseen bill.
Calculate Your Debt Load, and Keep It Below 36 Percent: Lenders look for a debt-to-income ratio that is below 36 percent. To find this ratio (or debt load), add up all your monthly debt payments, divide your monthly payments by your monthly gross income, and move the decimal point two digits to the right.
Don’t Close Old or Paid-Off Credit Cards: The unused credit can benefit your credit utilization ratio.
Consider Moving in With Roommates: Or, think about getting a second job or even moving back in with your parents to pay off student loans or credit card debt quickly if it is hurting your credit score.
Never Carry a Balance on a Credit Card: Carrying a balance on a credit card can lead to paying more for everything because of the added interest that accrued. This can also increase the possibility of missing credit card payments.
Never Use a Credit Card to Buy Things You Cannot Afford: This is how credit card debt troubles begin and build.
Boosting your credit score is one of those things that takes time, but it is worth the hard work. Use these tips while you’re young, and you can enjoy numerous financial opportunities in your near future.
Naomi Mannino writes for GOBankingRates.com, a portal for personal finance news and features, offering visitors information on interest rates, strategies on saving money, managing a budget and getting out of debt.
