The best ways to build excellent credit are much different in your 20s than in your 50s.
Your age often affects how you balance your budget, saving for retirement and assess your investments. But it must also be a factor in managing your credit score.
The length of your credit history affects your FICO score highly, which lenders use to determine the ability of a borrower to repay a loan. While it is important to pay your bills on time and keep your balances low at all ages, there is more than most consumers can do to improve their scores so they can get better loan terms.
Here are nine steps to help you build excellent credit for your life.
1. Request a credit card
John Ulzheimer, president of consumer education for SmartCredit.com says that consumers generally get into the game of credit between the ages of 18 and 22, if the restrictions of the CARD Act makes it increasingly difficult for persons under 21 to get their first credit cards. Regulations aside, it is best to get a credit card as soon as possible because the debit cards will not increase your credit score.
Most beginners get their first credit card by getting a parent or guardian to co-sign the application or the application of a secured card, which requires customers to deposit money in advance that correspond to their lines of credit and minimize risk of failure. Either strategy can be effective as long as you understand that the real trick is to use these cards responsibly.
2. Do not apply for every credit card
“Construction Loan is not the same as building a large balance,” Ken Lin, CEO of Credit Karma.com said. Do not make the mistake many beginners make credit by opening a store card credit to all businesses visited during Christmas, for example.
Tom Quinn, expert in consumer credit for Credit.com, said that consumers should only apply for credit when they need it. A large number of credit inquiries over a short time can cause your score to go down, “he said. It can also make it much easier to run a pile of bills you can not pay.
Instead of a wallet full of credit cards, Lin proposes to add a new credit card once a year to your arsenal until you have collected three or four cards you can always pay on time.
He also suggests finding cards that are not annual fees, as any card you open at this stage should remain open for at least five years. These cards determine the length of your credit history, which represents 15% of your total credit score, so choose a card with a low to no annual fee, it is easy for beginners to keep soaring accounts opened in the long term.
3. Start watching your credit score
Beginners should be extremely diligent credit during these formative years. FICO score attempts to predict whether you’ll pay a loan on time and the first indications that you may not be particularly damaging.
“Consumers in their 20s should be aware that their credit ratings are more volatile and will react differently to payment delays and excessive credit card debt that consumers with credit files of increasing,” said Ulzheimer.