Get ahead of the game while you're young, and your credit will thank you.
With age comes more life experience and financial stability -- which may also mean a higher credit score. The Ascent's study on credit scores in America found that individuals over 60 have an average credit score of 747, which is 88 points higher than adults that fall into the 18-29 age range.
In other words, older Americans are more likely to have very good credit, whereas young adults are more likely to have credit that's considered "fair." After all, people in their 20s haven't had a lot of time to build good credit.
Luckily, with some determination and strategic decision-making, it's possible to obtain good, or even excellent, credit at a young age. Here's how you can increase your credit score and maybe even surpass your parents.
1. Get started as early as possible
Your first goal is to build a lengthy payment history. You can start from scratch by opening a credit card with a cosigner or choose a card that's designed to build credit -- like a student credit card.
If you want to try for a regular credit card, use your current relationships to your advantage. Your local credit union may be willing to approve you for a credit card if you already have a positive, long-standing relationship with them.
You can also explore opening a secured credit card which requires a refundable deposit in exchange for credit. The best secured credit cards require a deposit ranging from $49 to $200 and come with a low credit limit. They can be a great option for someone who has just started their credit-building journey.
Finally, if you're having a hard time getting approved, you may have better luck applying for a store credit card. These are usually easier to qualify for, but they tend to have high interest rates and lousy terms. So treat this route as a last resort and make sure you pay off your balance in full each month to avoid interest.
2. Use your credit card regularly and pay it off every month
You can't build credit by simply carrying a credit card in your name. You have to use it.
Consider using it to pay for a few of your regular bills each month. This can help you get used to using a credit card without swiping it for things you don't need.
One of the worst things you can do to your credit is miss payments. Set up automatic payments to ensure this doesn't happen, and pay off the full balance whenever possible to avoid interest fees.
3. Carry multiple credit cards
Once you've adjusted to using one credit card responsibly and built up some credit, you can open your next line of credit. Balancing several credit cards at once shows you can manage multiple due dates, which creates a more robust payment history.
You need to be smart about when you apply for credit and how you manage your payments. Stick to one or two applications per year to avoid a negative impact on your score. You can keep track of your payment due dates by setting up notifications with your credit card company and signing up for autopay.
4. Keep a low debt-to-credit ratio
You should use your card regularly, but not enough to max out your credit limit. Always keep your balance low, even if you're paying off the full amount each month. This will help keep your credit utilization low, which is an important component of your credit score.
Essentially, your debt-to-credit ratio -- or your balance(s) in relation to your overall credit limit -- should remain below 30% at all times. If you find yourself hitting your credit limit regularly, request a credit limit increase or consider opening another card. This will decrease your credit utilization, as long as you don't increase your balance.
5. Keep old credit cards open
As your credit score improves, you might find yourself gaining access to more rewarding credit cards. But it's important that you don't close your old credit cards unless they charge an annual fee.
As long as your credit cards aren't costing you anything, keep them open to maintain the length of your credit history and the average age of accounts. Both of these factors play an important role in determining your credit score. It will also keep your overall credit limit high, which helps your credit utilization rate.
6. Sign up to include your banking and bill payments in your credit score
You no longer have to rely solely on lending information to determine your credit score. Services like UltraFICOTM and Experian Boost can give you alternative ways to boost your credit with existing positive financial data.
UltraFICOTM allows you to choose to include information from your checking and savings account to better demonstrate your financial responsibility. You can also opt in to Experian Boost to allow Experian to access your online banking information and include utility and phone bill payments in your payment history.
7. Go slowly and avoid scams
Building credit takes time. Be wary of services that claim they can help you immediately or quickly achieve excellent credit without requiring any work on your part. These can be a scam, or at the very least, potentially risky.
You never have to pay money to build your credit. Even though taking out a loan can sometimes help, you shouldn't take on debt that you don't need just to improve your credit score.
Instead, rely on free credit-building methods -- like using credit cards and consistently paying your bills on time. It may take some time, but your diligence will pay off and set you up for future financial success.
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