Many young people have trouble breaking into the industry due to a lack of credit history, or poor credit history. It is no secret that younger adults tend to have the lowest credit scores. This is due to a few reasons, including; missed or late credit card payments, higher credit utilization ratios, and a lack of credit history. While you cannot change what has happened in the past that may be impacting your credit score, you can make changes now, to build your score for the future.
First, you need to learn how to track your credit score and know what goes into calculating your score. There are three major credit bureaus, Experian, Equifax, and TransUnion, that are trusted by financial institutions across the country. These institutions all use slightly different formulas to assign credit scores, but the criteria is mostly the same. Each institution will be looking into things like, total amount of debt, payment history, type of credit used, length of credit, and recent credit changes.
If you happen to check your credit score and notice it is a bit lower than you’d like, do not panic, there are plenty of ways for you to repair your credit. Some ways to repair and start building your credit are;
- Maintain Payments – Falling behind on payments is the most common way to lower your credit score. Setting up reminders and automatic payments is a good way to keep you on track each month.
- Keep Credit Utilization Low – Agencies like to see that your credit utilization ratio is below 30%. If for instance you had one credit card with a $10,000 limit you should only be carrying a balance of $3,000 or less.
- Pay Outstanding Debts – Paying down older debts, and larger debts can have a positive impact on your credit score.
- Keep Accounts Open – Having a long credit history will play a factor in your credit score. Even if you have credit cards that are seldom used, it is wise to keep a few of them in your credit portfolio.
- Fix Any Errors – Credit reporting agencies are not perfect, so with something as important as your credit score should be checked constantly for errors. A small reporting error is the last thing you want to be tanking your credit report.
If you need a more actionable way to start building your credit, you can look into taking out a beginner credit card. These cards are great for younger professionals who either don’t already have a credit card, or maybe only have one. While taking on more credit is not always good, there is a middle ground to be found that will help you maximize your credit score.