Young adults seem to be keeping their credit cards tucked away. How might that impact their credit score?
The New York Times reported that the share of Americans under 35 with credit card debt is the lowest it’s been since 1989. Perhaps this younger generation has the perception that credit card debt — regardless of how much — can only get you into trouble.
But consider this: Using a credit card can help prepare you for your financial future. Used responsibly, credit cards can help improve your credit score; without one, you may miss the chance to establish yourself as a reliable borrower ahead of major purchases that require a loan, such as buying a home.
If you’re looking to open a credit card to establish a credit history, here are three habits that can help you build a solid score.
Payment history accounts for roughly 35% of your FICO® score, so it’s critical that you pay your bills on time. If you tend to forget when your bill is due, you can set up email reminders on your credit card issuer’s website. You can also enroll in auto-pay, which automatically triggers a payment from the account of your choosing.
Payments that are 30 days late could negatively affect your credit score. A payment that’s 60 or 90 days late may have an even bigger impact.
If you’re charging more than you can afford on a regular basis, you’re probably living beyond your means. Credit cards aren’t free money — if you pay less than what you charge each month, you’ll be charged interest on the remaining balance, so always spend responsibly.
Your credit utilization ratio compares how much you charge each billing cycle to your total amount of credit (which can be the sum of several credit cards). If your income has increased since you got the card, you may be able to request a credit-line increase, which would help lower your credit utilization if your spending stayed the same as before the increase.
You can also keep your credit utilization ratio low using a few tactics:
If you have a history of responsible card use and your credit limit is low, you might be able to ask the credit card company for a credit-line increase.
Having a credit card and using it responsibly can help prepare you for life's biggest purchases. Implementing these strategies into your everyday life can help you make the most of that opportunity.
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