Your credit shapes just about every major financial aspect of your life, from your ability to rent an apartment to your chances of getting a mortgage. Establishing a solid credit history in your 20s can put you on the right path, but that’s easier said than done. According to a recent survey from Credit Karma, 68% of adults wreck their credit before age 30. If you don’t want to fall into that category, check out these five credit rules for 20-somethings.
1. Less Is More
Opening a credit card account is a fairly easy way to build credit. But you don’t need to go crazy and apply for every card that’s on the market. In fact, that can work against you in the long run since each new inquiry can knock a few points off your score.
You’re better off being selective and limiting your plastic collection to one or two cards, focusing on ones that offer the lowest APR, the fewest fees and rewards that fit your spending style.
2. Get on a Schedule
Learning how to pay bills on your own can be a big adjustment for some 20-somethings and it’s not uncommon for something to fall through the cracks. The problem is that as far as your credit’s concerned, even one late payment can cause your score to drop. Using a budgeting app, mobile alerts from your bank or even a regular paper calendar can keep your payment schedule on track so you don’t unintentionally wreak havoc on your score.
3. Don’t Neglect Your Student Loans
Getting a credit card isn’t the only way to build credit. Installment loans are also factored in to credit score calculations, so you can’t afford to slip up if you’re carrying student debt. If you’re having trouble making minimum payments, looking into deferment or forbearance programs can provide some temporary relief. Consolidating or refinancing student loan debt might also help make the payments more manageable.
4. Pay in Full
Carrying a balance on your credit card is a bad idea for two reasons. First, you’re going to be stuck paying interest on the things you buy. If you’re still living on a broke college student’s budget long after you’ve graduated, throwing away money on interest just doesn’t make sense.
The other reason to avoid carrying a balance is that it won’t help your credit score. For FICO credit scores, 30% of your score is based on what you owe and lenders pay close attention to how much of your available credit you’re using at any given time. Max out a bunch of credit cards in your 20s and you could find yourself stuck in a hole that you can’t climb out of in your 30s.
5. You Can’t Just Set It and Forget It
Credit scores are fluid, meaning they change according to the information that shows up on your credit report. Your credit report contains details for all your debt accounts, including how much you owe, when the accounts were opened and your payment history. If you’ve got an error on your credit report, that can drag down your score.
Checking your credit report regularly can keep you tuned in to what’s on your report and how it’s affecting your score. If you spot an error, disputing the mistake can get the information removed or updated so it doesn’t continue to weigh your score down.
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