A solid credit history is the foundation of financial independence and purchasing power. It might be challenging for young people to develop a great credit score right away and demonstrate a strong credit history that lenders take seriously. As per recent reports, young people suffer from low credit ratings in part because they haven't had enough time to build wealth and experience. So, starting early in the key to having good credit. So, if you want to start building your credit but pondering over how to start building credit at 20, you are at the right place because we have covered all your possible doubts and their best solutions. Let’s start exploring details about how to build credit at 20!
Is It Possible to Build Credit at 20?
Yes, you can start building your credit at 20. But due to the lack of information on their credit report that may be used to calculate a credit score, 18-year-olds actually do not have any credit scores at all. However, as soon as you apply for a loan or credit card and begin making payments, your bank begins informing credit reporting agencies about the status of your account.
Why it's Important to Build Credit at 20
Even if you don't have any immediate plans to borrow money, it's likely that you'll require a personal loan, mortgage, or auto loan at some point. Additionally, if you have bad or no credit, you have to pay far more to borrow money than someone who has a better financial background. This is due to the fact that lenders frequently impose higher interest rates on customers with subprime credit scores.
Furthermore, having negative credit or credit invisibility can keep you from getting new possibilities in addition to being pricey. For instance, credit checks may be done by landlords and employers when evaluating potential tenants or employees. You could not receive the pay you deserve if your credit score keeps you from finding employment.
On the other hand, having an excellent credit history can lead to a wealth of opportunities. You might have access to a credit card with large travel benefits, or you might even get a small business loan to launch your entrepreneurial career.
What are the Best Ways to Build Credit at 20
Here is the list of best ways of “how to build credit at 20”
- Pay Your Bills Promptly
- Get a Credit Builder Card
- Maintain a Low Credit Utilization Ratio
- Become Authorization User
- Take into account a credit-building loan
- Pay Your Bills Promptly
The main determinant of your FICO credit score is your payment history, and missed payments have an impact. This can include your monthly payments for utilities, rent, credit cards, and any other expenses from companies that send information to the major credit bureaus. You should always pay on time to prevent late fines, even if your landlord doesn't disclose missed payments.
You may prevent forgetting to pay any of your bills by setting up automatic payments; just make sure you have enough money in your checking account to handle any planned automated payments.
- Get a Credit Builder Card
An excellent strategy to improve your credit score is to use credit cards wisely. And fortunately, certain cards are created especially for those with a spotty credit history.
You can typically be approved for a secured credit card, which typically requires you to prepay the credit limit as a deposit, even if you have no credit history. You can choose the deposit amount for the Discover it® Secured Credit Card, which also offers 2% cash back at restaurants and gas stations (up to $1,000 quarterly) and 1% cash back on all other purchases.
Zolve Credit Builder Card, which has no annual fee and can be an excellent introductory card for persons with a limited or mediocre credit history, is an option if you don't want to pay a deposit, and reports to three credit bureaus. A card is available to you if you are enrolled in school.
- Maintain a Low Credit Utilization Ratio
Your credit usage ratio, which determines how much of your available credit you typically utilize, is another important factor in determining your credit score.
It's advisable to maintain your credit usage low because lenders become concerned if borrowers repeatedly use up all of their available credit. You should normally aim to keep your credit usage percentage below 30%.
Your ideal credit utilization would be $300 or less if, for instance, you have two credit cards with a combined $500 credit limit. Your credit score should increase if you keep your balance below your credit limit.
- Become Authorization User
Think about requesting to be included as an authorized user on one of their credit card accounts if you know someone who is responsible for money, such as a parent or another family.
The primary account holder will set your credit limit, and as long as they complete their payments on time, your credit score should rise. Choose someone you can trust, but keep in mind that if the primary account holder doesn't make payments, your credit score could suffer.
- Take into account a credit-building loan:
Lending-builder loans operate differently from other forms of credit and, as its name suggests, are designed to assist borrowers in enhancing their credit.
The lender will initially deposit the money into a savings account when you take out this kind of loan. You'll make consistent payments to cover the principal and interest, and you'll have access to the funds after the loan is fully repaid. As the lender notifies the credit agencies of your timely payments, you will be able to observe your credit score increase in the interim.
Since lenders don't assume the risk involved with a traditional loan, you can typically get approved for one of these loans even with a low credit score.
How Long Does it Take to Build Credit at 20?
After six months of reported payment history, you can generate a credit score based on FICO, the most widely used credit scoring model. However, it can take you a while to achieve a good credit score—at least 670 according to the FICO scoring algorithm. If you maintain solid credit habits, such as making on-time payments and keeping the amount of money you borrow modest, you can still have high FICO scores even if your credit histories are short.
However, if you're beginning from scratch, it will probably take you longer than six months to acquire a good score. You must open a credit account, such as a credit card, in order to increase your chances of achieving your objective more quickly. After that, to gradually raise your score, you must exhibit sound credit conduct. So, going for a credit card at 20 will be fruitful in your credit journey.
So, now you know how to start your credit at 20 and it's never early to start building your credit score. By implementing these tactics in your 20s, you'll position yourself for long-term financial stability, save money on significant purchases, and create new opportunities that you wouldn't otherwise have. Have patience and begin with the easy and best Zolve Credit builder Card, as it's easy to navigate and comes with no annual charges or hidden fees and reports to three credit bureaus that will help you in building a solid credit history.
Frequently Asked Questions (FAQs)
What is the average credit score of 20-year-olds?
For people in their 20s, the typical FICO® credit score is 660. Consumers begin to build their scores between the ages of 20 and 29. These customers might be paying off their student debts with a low-limit student credit card.
How to build your credit at 20?
Here are the best and easy ways to improve your credit:
- Pay your debts completely and on time. Just over a third of your credit score is determined by your payment history
- Consider using credit-building tools
- Use only some of your credit
- once a year, check your credit
When should you begin to establish credit?
An excellent way to get started is by getting a credit card in your 20s. When you turn 18 so you can start building credit and learning responsible financial practices early on. The benefits of getting a credit card at age 18 are discussed herein above the blog, along with steps you may take as a new cardholder to safeguard your credit rating.
Is a 20-year-old eligible for a credit card?
Yes, you can get a credit card at 20. Although, an unsecured credit card is difficult to obtain before turning 21 due to the Credit Card Accountability Responsibility and Disclosure Act of 2009, which stipulates that you must be at least 18 years old to sign a credit card contract along with a reliable source of income. So, if you don’t have income proof, you can opt for credit builder cards and Zolve Azpire Credit Builder Card is the best among all.
Is it a wise decision for a 20-year-old to have a credit card?
Definitely, it is the right age to start your credit journey. If you're a young adult without a loan or credit card in your name, you probably don't have much credit history. You can start building your credit history and working to improve your credit score by getting a card in your early 20s.
