Building a strong credit score early can open doors to better financial opportunities, from securing lower insurance rates to renting an apartment with ease and even qualifying for major loans like a mortgage. Here are key strategies young adults can use to establish and maintain good credit.
Start with a Secured Credit Card
A secured credit card functions like a regular credit card, but it requires an initial deposit, which serves as the credit limit. This helps build credit while minimizing risk, as the bank is covered if payments aren’t made. Making small purchases and paying the balance on time each month helps establish responsible credit habits.
Become an Authorized User
Young adults can benefit from being added as an authorized user on a parent’s or guardian’s credit card. This allows them to share the credit history of the primary account holder. However, it's important to ensure that the primary account holder makes payments on time, as late payments could negatively impact both credit scores.
Open a Low-Limit Credit Card
A credit card with a low spending limit (such as $200) is an effective way to start building credit. The key is to use the card for small purchases—keeping utilization low—and paying the balance in full each month. Within a few months, this can help establish a strong credit history.
Pay Bills on Time
Payment history is the most important factor in a credit score. Even one late or missed payment can significantly lower a score and remain on a credit report for years. Setting up automatic payments or calendar reminders can help ensure bills are always paid on time.
Understand Credit Terms & Conditions
Different credit cards have varying interest rates, fees, and policies. Before using a card, it's essential to read and understand the terms, including when interest applies and how much it costs. Choosing a card that fits spending habits and financial goals can prevent unnecessary fees and surprises.
Monitor Your Credit Report
Federal law allows individuals to access a free credit report annually from each of the three major credit bureaus. Regularly reviewing credit reports helps identify any errors or fraudulent activity that could impact a credit score. If discrepancies arise, they should be reported and corrected immediately.
Pay Student Loans on Time
For those with student loans, on-time payments are crucial for maintaining a strong credit score. Student loans are reported to credit agencies and play a significant role in overall credit health. Setting up automatic payments can help ensure payments are never missed, avoiding late fees and potential credit damage.
Consider Cosigning on a Lease or Loan
Having a parent or guardian cosign an apartment lease or an auto loan can help establish credit history. On-time payments will be reported to credit bureaus, building a track record of responsible financial management. Over time, this can lead to independent approval for future loans and rentals.
Know the Difference Between Credit & Debit Cards
Understanding how credit and debit cards function is essential for smart financial management:
Debit cards pull money directly from a checking account and do not impact credit scores.
Credit cards involve borrowing from a lender, can accumulate interest, and require monthly payments. They also help build credit history when used responsibly.
What Is a Good Credit Score for Young Adults?
Credit scores typically range from 300 to 850. A score between 670 and 739 is considered good, while higher scores qualify for lower interest rates and better loan terms. A score below 670 may require a cosigner for major financial commitments like apartment rentals or car loans.
The Long-Term Benefits of Good Credit
A 2018 study by LendingTree found that consumers with very good credit scores (740-799) could save over $45,000 in interest across a lifetime of loans compared to those with fair credit (580-669). Establishing good credit habits early can lead to significant financial savings and increased financial stability.
Need Help Getting Started?
Navigating the world of credit can feel overwhelming, but U1 is here to help. For personalized guidance on building credit, contact U1 Member Support at (800) 543-5000, option 0, or email memberservices@u1cu.org. Our team is available Monday–Friday from 9 a.m. to 5 p.m. and Saturday from 9 a.m. to 12 p.m.
Start building your financial future today with smart credit habits that set you up for long-term success!
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