Whether you’ve recently graduated or are early into your career, building up your credit at an early age can have a positive impact on generating financial independence and give you a head start on your future financial goals. Here are a few do’s and don’ts when building credit:
Don’t: Wait to start establishing credit
Your first credit inquiry is what establishes your credit reporting history. The longer you wait to get started, the more difficult and/or more costly it may be to apply for credit in the future.
Some options for establishing your credit history include:
- Applying for a secured credit card
- Becoming an authorized user on a family member’s credit card
- Repaying student loans on time
Don’t: Don’t spend what you don’t have
When making credit purchases, consider if you have the money to pay off that purchase right away. If not, you should reconsider if the purchase is worth making and if you should wait to buy until when you have the savings to cover it.
You should also consider your overall credit utilization as it can have an impact on your credit score. The rule of thumb provided by most credit experts is to use no more than 30% of your credit limit. High usage can be counterproductive when looking to build your credit so it’s a good practice to cut that threshold in half and keep your credit usage at or below 15% when you can.
Do: Pay your bills early and in full
A common misconception with credit card balances is that you must keep a balance from month to month to get credit for making payments on time. By keeping a balance, you run the risk of accruing interest and/or potential fees. Keeping a balance isn’t going to boost your score but paying your balances will. Paying your bills and credit card balances ahead of their due date is a practice you can start today to keep your outstanding balances low and avoid late payments, interest and fees.
Don’t: Try to open too many accounts at a time
When you apply for a new credit account, you can initiate a hard inquiry on your credit report. Having multiple hard inquiries can serve as a red flag to lenders that you could be experiencing financial hardship. This can create a negative impact on your credit history and lower your credit score. It typically takes up to two years for each inquiry to fall off your report so try to be mindful when opening new accounts back to back.
Having good credit habits early on will help you to not only grow your credit but maintain it as you work towards your financial goals over time.