The Secret To Building A Great Credit Score When You're Young

Just because you recently became an "adult" doesn't mean you can't build excellent credit.

Jul 20, 2014 at 12:00PM

Of all the things on the typical 18-year-old's mind, building up a solid credit score is usually not on top of the list. However, with just a little bit of effort and a decent understanding of how credit works, it's actually quite easy to build up a credit score in the "very good" or "excellent" range from scratch in just a year or two.

Here is a "cheat sheet" that can help you achieve an adult credit score while still in your teens.

What your credit score is made of
Fortunately, the largest components of your credit score are the easiest for younger adults to control.

According to, where you can obtain your actual FICO score (the credit score lenders use), there are five categories of information which make up your score. And, some of the smaller categories definitely put younger adults at a disadvantage.

For instance, 15% of your score is based on the length of your credit history. Well, if you are 18 or 19, it's not very long at all. Another 10% is based on the mix of different types of credit you use. Generally, 18 year olds are not going to have mortgages, car loans, or other kinds of credit accounts more common to older adults. In other words, the lack of "diversity" on a younger consumer's credit report can be viewed as a negative.

However, the other three categories make up 75% of your score, and can easily be made to look good for younger borrowers. The largest category, "payment history", makes up 35% of your score and may sound like newer borrowers might be at a disadvantage. Not so. The payment history category only takes into account the payment history of your current accounts. If you have no late payments whatsoever, you'll ace this part of the formula.

Another 30% is made of the amounts you owe. We'll get into this more in a second, but this refers to the amount you borrow relative to the amount you can borrow.

The last 10% is made up of "new credit", or how many accounts you open in short amounts of time. In other words, opening one credit card is fine, and can actually help your score. Opening seven credit cards during the month you turn 18 will probably hold your score back considerably.

Get a credit card (or two) and use it responsibly
Shortly after you turn 18, open a credit card account. I know you've probably been warned about the "evils" of credit cards, especially if your a college student. And the warnings are all true...if you use your credit cards improperly. Just like anything else, there is a right way and a wrong way to use credit cards. Let's take a look at the right way to do it.

Credit Cards Pixabay Jarmoluk


I'm talking about opening one, or maybe two credit card accounts and using them for things you were going to buy anyway. If you were going to pay cash for a book, charge it and pay it right off.

There are some excellent credit cards designed specifically for students, and maintains an excellent list with descriptions here.

The number one thing not to do is carry a high balance. If you start out with a $1,000 credit limit and run up a balance of $800 on the card, it's not good for your credit. The average "high achiever" (people with awesome FICO scores) carries a balance from month-to-month of about 7% of their credit line.

So, if you have to charge a couple of books and wait until next month to pay for them, it's probably fine. If you max out your card by charging a spring break trip, it's another matter...

Keep an eye on it
Once you've set yourself on the right path by opening a credit account and using it responsibly, keep track of your progress. As I mentioned, can give you the actual score most lenders see, so it may be worth the monthly cost.

Binoculars Ante Perkovic

Ante Perkovic

Also, all U.S. consumers are entitled to a free copy of their credit report once a year from each of the three major credit bureaus (Experian, Equifax, and TransUnion). Take advantage of this, and make sure the information you see is accurate while you're reading over the reports.

If you use a little restraint and common sense, and know how the system works, by the time you are out of school, you could have a credit score that will be the envy of all the other 20-somethings you know.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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