When you’re in your 20’s, it’s easy to live the “live fast, die young” lifestyle. Unfortunately, this desire to live life to the fullest often translates into poor spending and credit management habits. And so, as many people have learned, by the time you reach your 30’s and you’re gearing up to buy your first home, you end up regretting the poor financial decisions you made when you were younger.
This is especially true when it comes to credit scores and debt, which are tied to your chances of getting a home loan approved. Fortunately, times are changing, with many 20-year-olds breaking the stereotype of being financially illiterate, and building solid credit scores in the process. Here’s how they’re doing it.
Getting a Credit Card Early
Getting your first credit card at an early age may seem like a bad idea, but when you can control your spending, it’s a great way to start building your credit history. Ultimately, the key to building good credit is time. So, the sooner you can begin developing good money habits, the sooner you can build a great credit history.
And don’t worry about not having as high of a credit limit as your friends. The purpose of getting a credit card is to build your credit history, not to see who can rack up the highest amount of credit card debt the quickest.
Paying Bills on Time
Being late on your bills can hurt your credit score, so be sure to remember when to pay all your bills, whether it’s your credit card, phone, or utilities. By building an on-time payment history, you are laying the foundation of a great credit score, proving to lenders now and in the future that you’re someone who can handle debt responsibly. On-time payments also ensure you stay out of collections, which can damage your score for years.
Keeping a Low Credit Card Balance
Keeping a low credit card balance low can be hard if you don’t have a high credit limit to begin with. While it’s obviously important to pay your credit card bill on time, maxing out your card can also hurt your score. When the credit bureau sees your credit utilization rate is high, they will see this as a sign that you’re too reliant on your credit, docking a few points off your credit score as a result.
Try to maintain a low percentage of your credit limit. Track your spending so you’re not charging too much to your card, and be sure to pay off your balance as quickly as you can.
Having No More Than Two Credit Cards
Every new credit account you open triggers an inquiry on your credit report, which in turn, can negatively impact your credit score. You really only need two cards at most, one as your primary account and the other as a backup in case your primary card gets declined.Besides, the fewer credit cards you have, the easier it will be to track your credit card statements.
Keeping an Eye on Your Credit Report
Monitoring your credit report does two things. First, it allows you to develop an understanding of how your spending habits directly affect your credit score. Second, it allows you to spot and fix discrepancies, which are more common than you think. The sooner you can deal with these mistakes, the less likely they will affect your credit score.
Once you’re ready to put your credit to use and apply for a home loan, get in touch with mortgage advisor Chris Lamm to begin your journey to homeownership. Call our offices today at 530-282-1166for a consultation.