by Elizabeth Aldrich | Updated Aug. 11, 2021 - First published on Oct. 22, 2018
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Credit cards can make or break your credit, and what you do with them in your 20s forms the foundation of your financial future. Hit these three milestones before your 30s, and you’re set.
Millennials have been criticized for not using credit cards enough, but in fact, more recent data suggests that folks in their 20s and early 30s are actually pretty credit savvy.
Credit cards can be a useful financial tool, but they can also destroy your finances if you’re not careful. If you’re wondering whether or not you’re on track, here are three important credit card goals to hit before you’re 30.
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Your early 20s mostly consist of establishing a credit history. The best way to do this is by getting a credit card -- the best student credit cards, low security deposit secured credit cards, or credit cards with a co-signer will be easiest -- and using it regularly.
You need to pay off your bill in full each month and always on time. Late payments are one of the biggest derogatory marks you can have on your credit history, and if you have a limited history, a derogatory mark will impact your score even more. Finally, be sure you leave your oldest credit cards open, as the average age of your accounts is also a factor in determining your credit score.
Having a good mix of credit types can help build credit as well, so taking out an installment loan -- such as an auto loan -- and paying it off responsibly will boost your credit score. That being said, you should never take out a loan you don’t need just to build credit.
As you see your credit history fill out, you should also see your score go up. By the time you’re nearing your 30s, you should have good or excellent credit. A FICO® Score of 720 or above will usually get you access to the best interest rates.
It’s not uncommon for people to spend their 20s paying off debt. Whether it’s loans or credit card debt you racked up when you were younger, you should be doubling down on any high interest debt -- that is, debt with an interest rate above 6% or so -- with the goal of having it paid off by your 30s.
Your priority when it comes to repaying debt should be credit card debt, as it often has the highest interest rates. Try taking up side gigs to bring in extra money and doing a spending freeze while contributing all your disposable income to paying off your credit cards. Look into the snowball method and the avalanche method for paying off debt and decide which one works best for you.
You’ll also want to get your interest rates as low as possible, which is why the first goal is so important. If you’ve managed to improve your credit score, you can call your credit card companies to negotiate a lower interest rate. If they won’t budge, you can look into doing a balance transfer to a good low interest credit card with no balance transfer fee, but you’ll still need a good credit score.
Once you’ve got an excellent credit score and are debt-free, it’s time to start benefiting from credit cards. As you near your 30s, consider adding one or two high-value rewards credit cards to your wallet.
The best cash-back credit cards can help you save hundreds of dollars every year. And a travel credit card can net you free vacations if you use it well. To multiply your rewards, look for lucrative sign-up bonuses. Once you’ve found your favorite rewards credit card, it should be your go-to payment method.
The last thing you want to do once you’ve achieved these goals is slide backward. Maintain your credit score and avoid falling into debt by always paying off your credit card bill in full each month.
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