How to Build a Good Credit History in Your 20s
Written by Anne Papmehl
Friday, February 1st, 2019
Your credit history matters at every age and stage in life. If you want to buy or lease a car, rent an apartment or get a mortgage, you need a good credit history. How do you build your credit history when you're just starting out?
Get a credit card
The simplest way is to get a credit card, buy a few things with it, and then pay the bill by the due date. As long as you pay your balance in full and on time, you don't pay any interest. You'll show the credit card company — which reports to credit reporting agencies — that you're a low-risk borrower, unlikely to default on your payments. That builds good credit history.
For some people in their 20s, getting an initial credit card isn't so simple. What do you do if your lack of credit history disqualifies you from the very tool you need in order to establish one? One option is to apply for a department or retail store credit card. While such cards may limit you to in-store purchases and charge higher interest, they're generally easier to get and they give you the chance to establish some credit history and qualify for a major credit card later on.
Another option is a secured credit card. To get one you need to provide the card issuer with a deposit equal to the card's credit limit. So if the credit limit is $500, you'd pay a deposit of $500. Then when you make payments for whatever amount you owe, that information will be reported to the credit reporting agencies the same way it would be with a regular credit card. Once you've earned a reputation for consistent on-time payments, you may be eligible to switch to an unsecured credit card.
Be on time with your payments
Pay all your bills on time: rent, telephone, electricity, and anything else you owe. Many twenty-somethings have student debt to pay off after graduation. Here's a chance to build your credit history by finding out exactly when your monthly debt repayments kick in and paying them on time. The same goes for any other debt you have, because missed or late payments get reported to the credit reporting agencies — and blemish your credit record.
Check your statements regularly and report any suspected errors to your financial institution
When I was a student, I didn't pay much attention to my bank statements. One day I went to withdraw money from the cash machine, only to learn there was no money in my account. I rushed up to a teller to find out what was going on. Turns out the bank had mistakenly put another customer's cheque through my account, putting me into overdraft. The teller quickly corrected the error and my credit worthiness didn't suffer, but the experience taught me to keep on top of my transactions and review my statements.
Beware of fraud, identify theft and other scams
Did you know that the highest number of fraud victims are millennials (from age 16 to 36)? One way to prevent becoming one is to avoid disclosing your key personal information on social media. This means not disclosing information such as your address, phone number and birth date, which is what fraudsters use to apply for credit cards under your name. Also, beware of any scheme promising to help you build or repair your credit history. You're the only person who can do that. If you suspect credit fraud or identify theft, report it immediately. The Financial Consumer Agency of Canada provides resources and information on what to do in these situations.
Accept and enjoy the rewards - you've earned them
Once you've shown a solid payment history, your financial institution might send you a friendly notice that you've been pre-approved for a credit limit increase or a line of credit. Congratulations! That means they see you as a responsible customer and you now have some credit history. Provided this offer doesn't tempt you to spend beyond your means, consider accepting it. Aside from being handy in case of an emergency, increased credit can allow you to borrow money (if you ever need to) at reduced interest rates and qualify for some nice promo deals.
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