6 Proven Strategies to Build a Strong Credit Score as a Young Adult

As a young college student just starting out in the real world, building a credit score might not be at the top of your to-do list. But, did you know that a good credit score could determine your access to wealth? Whether you’re looking to lease a car, rent an apartment, or get a credit card, your credit score will play a huge role in achieving those financial goals.

But, don’t worry if you have an invisible credit score or no credit history, you are not alone! Around one in ten Americans have an invisible credit record. There are a few types of people in that category:

• People who paid off borrowed money and didn’t borrow more since
• 12% of those have stale files of credit with the bureau
• Most of them are young ones who are yet to set out to build credit scores

Luckily, your time on the list is temporary. If you’re new to building credit, there are many things you can do to start building your credit score. Some tips include opening a credit card, paying your bills on time, and keeping your credit utilization low. But, let’s take a step back and understand what credit scores are and why they matter before diving into building them.

Understanding Credit Scores and Why They Matter

Your credit score is more than just a three-digit number. It is an analysis of your credit behavior, such as the amount owed, credit spending, credit history and more. It is the number through which credit agencies decide on a consumer’s ability and trustworthiness to repay debt.

Credit scores range from 300 to 850. The higher the score, the more likely you are to get qualified for better loan terms and interest rates.

Payment history makes up 35% of your FICO credit score. Therefore, other than the more literal functions of credit scores, they are also used by lessors or landlords to check the tenant’s credibility. If you’re a young individual renting an apartment for off-campus housing or rooming with fellow students, don’t worry if you don’t have a good credit score (or no credit score at all), as the average score for apartment renters in your age group tends to be low. However, it’s important to start building your credit early to establish a good credit history for the future.

Start Building Credit Early

Building a good credit score early on is important for college students because it provides a solid foundation for your financial future. A strong credit score can help students get approved for loans with favorable terms, such as lower interest rates and higher borrowing limits. This can be especially helpful when it comes to major purchases, such as a car or a home. In addition, having good credit can also make it easier to rent an apartment, qualify for a credit card, or even get a job that requires a background check. Here are 6 ways to make that happen for you:

1. Become an Authorized User of a Credit Card

The first question many ask is, how do you even build credit at 18? Most financial products have an age bracket of 18. To get a head start on building your credit score, you can opt to become an authorized user of a parent’s credit card or get an adult around you to co-sign a credit card.

However, authorized credit cards or co-signing credit cards come with their own caveats. If your partner doesn’t have good credit or frequently borrows or delays payments, it can harm your credit score. So, if you do plan to partner with someone, ensure that they are smart credit users.

Pro Tip: Make sure your credit card issuer reports authorized users to the credit bureaus. If they don’t, you will not be able to leverage your score on another’s credit.

2. Get a Secured Credit Card

If you don’t have a credit card already, apply for a secured credit card. Secured credit cards require a first-time deposit which becomes the credit limit, making you more likely to qualify for the application.

Usually, the deposit ranges from $200 to $500 and is refunded when you cancel the card, assuming all prior balances are paid off. While the credit limit may be meager, it is a relatively low-risk credit card that should work well to build credit as a young college student in the elementary phase. Also note that credit card companies often offer students their first credit card assuming that their parents will cover it if needed. So you might be able to apply and qualify for a student credit card.

Pro Tip: A secured credit card is also a great method to rebuild your credit if you somehow ended up having bad credit and cannot get approved to traditional credit cards. It will take you about a year to rebuild your credit, as long as you pay all your payments on time, and then apply for a normal credit card.

3. Practice Good Credit Behavior

Establishing a good credit score takes time and patience. Once you have applied for a credit card or loan, you must practice responsible credit use.

Make Timely Payments

Your payment history has the most weightage on your FICO credit score. Keep track of your payments and pay them regularly. These don’t solely include payments on your credit card, but also rentals, bills, or any debt you might owe. Imagine moving to a new country for college and never bothering to establish a credit score. That’s exactly what happened to Diggz’s CEO, Rany. His request for a credit card got denied because of a missed payment on a mere $14 medical bill and had to start off his post college life with bad credit. If any corporation reports late payments on your end to the credit bureaus, it can leave a big stain on your credit report that could take years to fix, even after you have paid up.

Set Up Autopay

If you can’t keep track of all the bills and payments lined up, consider setting up automatic payments to reduce risk. Similarly, you can always opt to back your payments on your credit card with a debit account to ensure you always have enough to make payments.

Pro Tip: Don’t just pay the minimum; pay more. If you are having trouble paying off bills, make sure to pay somewhat above the minimum amount, at the very least.

Limit Credit Balances

As a rule of thumb, try to limit your credit balances to less than 30% of your available credit. Lenders don’t like seeing maxed-out credit limits, even if you do end up paying the amount in full each month. Keep a credit utilization ratio of 30% or less. So, if your credit limit is $1000, utilize the 30%, i.e., $300.

Pro Tip: If you are used to spending out of your checking account, or via a credit card your parents gave you, get into a habit of making some purchases on your own credit card to keep it active. Maybe pay once a month for groceries with your credit card, this way it remains active, and you don’t overuse your credit balance.

4. Get a Job

No, having a job doesn’t directly affect your credit score. But, it does leave an impact on potential lenders, credit card issuers, and co-signers of lease or authorized cards.

Having a steady flow of income will allow you to make payments preemptively and practice responsible use of credit.

If you are under 18 and trying to get ahead of the game, scoring a job should be your first priority to scoring good credit.

5. Take Out a Loan

Now, this may sound counterintuitive. But not all debt is bad debt. In fact, according to Rany Burstein, CEO of Diggz, there’s a unique approach to building a credit history that may sound contradictory at first. While it’s generally not advisable to take out unnecessary loans, taking on debt and paying it off responsibly, can actually be a strategic move to improve your credit score.

• Student Loan — If you already have a student loan under your belt, you are not liable to pay it off until graduation. However, you can start making interest-only payments on your student loans to establish a credit history early on. It’s all about using loans wisely and making timely payments.
• Credit Builder Loan — Credit builder loans are exactly as their name suggests; they are a tool to help you build credit without taking on risky debt. With smaller loans of $1000 or less, you pay the loans back over a year or two. Besides having your repayments secured in savings accounts, they are also reported to the credit bureaus. Now you can walk off with a credit history as well as some bucks in your savings account!

6. Frequently Check Credit Report

As you become more and more comfortable with using credit, it’s important to monitor your credit reports to ensure there are no surprises. A credit report error makes 1 in 5 Americans look riskier than they actually are. In other words, keep a lookout for missed payments, correct reporting by the issuer, identity theft or fraud, or credit report error by the bureaus.

It is possible to obtain a credit report from some credit issuers, but you may also check it on your own for free once every year. These days, most bank accounts also offer free credit monitoring and will alert you of any changes to your credit score and credit balance. Make sure to take advantage of that.

Common Mistakes to Avoid

Even if establishing credit as a young adult may not be your top priority, it’s important to avoid common mistakes that could negatively impact your credit history. Doing so will prevent further disruption to your credit and make it easier to build credit in the future.

Applying for too many Credit Cards

The more credit cards you have, the more interest you accrue. And while you are just starting to establish credit as a young adult, it is essential to stay on top of your debt. Applying for too many credit cards can be detrimental to a college student’s credit score and financial stability.

Each credit card application results in a hard inquiry on your credit report, which can lower your score. Furthermore, having too many credit cards can lead to overspending, missed payments, and high-interest debt, which can cause long-term financial problems. Keep in mind that credit card companies see every time you apply for a new credit card, so it could flag you as someone who is distressed or looking to borrow beyond their means.

Not Getting a Diverse Credit Portfolio

In the long run, a diverse credit portfolio looks best on your report. Go for other financing options with fixed monthly payments to let your potential lenders know you know how to budget.

Credit Mix also makes 10% of your FICO credit score. Having different types of credit, such as student loans, car loans, credit cards, etc., shows you are responsible for handling your financial obligations.

Canceling Old Credit Cards

Hang on to those old credit cards you may be tempted to cancel. Your length of credit history dates back to your oldest or first credit card. An older credit that is well paid off, remarks strongly on your credit report.

Pro Tip: Make a habit to spend a bit on that card each month to also keep it active. Link it to your Netflix account, Uber or other subscription and that way you don’t have to think about it. But make sure you set up auto-pay and pay it in full each month.

Making Late Payments

Staying on top of any payments, such as rent, utilities, credit payments, or more, is crucial for maintaining a good credit score. Even a small missed payment can leave a stain on your credit report and can negatively impact your credit score for years to come.

Late or missed payments can result in penalties and fees, which can add up quickly and increase the amount of debt owed. Additionally, missed payments can lead to collection accounts, which may further damage your credit score and make it difficult to obtain credit in the future.

Frequently Asked Questions

How long does it take to build credit?

The time it takes to build credit depends on various factors, such as how consistently payments are made, how much credit is used, and the individual’s credit history. Generally, it takes at least six months of responsible credit use to establish a credit score.

What is the best way for young adults to build credit?

As a young adult with few financial obligations, your top priority in building credit should be making timely payments on all your accounts, getting your rent payments reported to the credit bureaus, and demonstrating responsible credit behavior. Doing so can establish a positive credit history that will benefit you in the long term.

What is the average credit score for a young adult?

The average credit score for young adults is 679, according to Experian data from September 2022.

What is a good credit score for a college student?

A good credit score for a college student or a young adult is anything over 670. A score above 730 is considered great, and anything over 800 is exceptional.

Does paying rent build credit?

Paying rent, typically, does not build credit, as rent payments are not automatically reported to credit bureaus. However, there are some services available, like Boom, that allow tenants to report rental payments to credit bureaus. It’s always a good idea to check with your landlord or property manager to see if they disclose rental payments to credit bureaus or consider using a rent reporting service if building credit is a priority.

Do international students have credit scores?

International students do not have a credit score in the US, even if they are financially active in their home countries. The credit report in the home country is not carried through to the host country. They can, however, take steps to start building a credit score, much like any other college student.