If you want to build your credit, it’s best to start young. Why? Because your credit score will follow you. Ignoring a credit card bill and letting it go to collection won’t make it go away.
Your credit score impacts so much of your life. Trying to get into an apartment? They’ll run your credit. Trying to buy a car from a dealership? They’ll check your credit. Applying for certain jobs? Yes, your employer will look at your credit score.
More so, if you’re trying to buy a car or get a loan you won’t be able to afford other things because you’ll be paying more for that loan due to your credit score.
A friend of mine in her mid 20s, went to get a used car at a dealership. When she was 19 she had ran up the charges on a credit card and let it go to collection without paying and it damaged her credit score. Due to her low credit score she now pays at least $200 more a month in car payments than she would if she had not let that credit card go into collection.
Let’s do the math on that. $200 x 12 months is $2,400 a year. If you’re in your 20s and I told you that if you just made the minimum payments that down the road you would still have $2,400 a year in your pocket, would you do it? I would. That’s a few music festivals, a lot of makeup, a lot of online shopping, and plenty of drinks at your favorite bar.
The first 7 years will especially affect your credit score. Which if you are new to having credit because you are young, this will especially impact your score. It’s a raw deal if you’re making your payments on time. However, with time your score will improve.
While you are young you what you can control is credit utilization. Think of these early years as a good time to practice good credit utilization, which is basically what percentage of your available credit you are using. Credit utilization is one of the biggest factors that will affect your credit score no matter how long you have credit.
So how do you have good credit utilization?
Credit utilization is basically what percentage of your available credit you are using. The best advice for having good credit is to pay off your balance every month. If not, then keeping your credit utilization under 30% is a good idea. Even better if you can keep it under 10%. So what does that actually look like?
So if your limit is $7,000 on your only credit card, then try to keep your balance under $2,100 (30%). Even better if you can keep it under $700 (10%).
Keep in mind that this utilization applies to all of your credit cards. If you also have a $3,000 card in addition to your $7,000 one (for a total of $10,000 in credit), then 30% would be $3,000 in total and 10% would be $1,000.
Nobody starts with a great credit score but you can build it, and starting while you are young is one of the best places to start.
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