One of the things I was looking forward to when I turned 18 was opening a credit card. I thought about how great it would be to go shopping and pay off my purchases at a later time.
It sounded great in theory, but making purchases that you don’t have the money for can affect your credit score in a negative way. In this guide, I’ll explain how, at the age of 21, I managed to achieve a credit score of 781.
- Pick a card that’s right for you
Unless your parents have added you to their credit card, you likely don’t have a credit score. This means there is no evidence that you can manage regular payments.
However, as a student, there are specialized credit cards designed to assist you in building your credit score. I personally chose one from my bank, Bank of America, because I already had a good relationship with them. However, I also know many people who opted for the Discover student credit card.
These cards offer benefits, such as cash back, and you can even ask or give your friends a referral code for extra money.
- Look at your credit card limit
You should strive to keep your spending comfortably below 30% of your credit limit. To put this into math terms, it’s the amount you owe divided by your credit limit. For instance, if you have a $500 limit, it’s a good idea not to owe more than $150.
While this might not seem like a lot, if you use your card responsibly for a few months, the bank may increase your limit because they’ll notice that you’re managing it responsibly.
- Understand statement due date and payment due date
The statement due date is when you need to review your credit card bill and make at least the minimum payment to avoid late fees and damage to your credit history. It’s the last day to ensure your payment reaches the credit card company.
The payment due date, however, is the specific day when your payment must reach the credit card issuer to be considered on time, which is typically a few days after the statement due date.
- Make sure not to open too many credit cards at the same TIME
I used to work in a store where we encouraged customers to sign up for our store credit card. My advice is to think carefully before getting one. If you’re only getting a 10% discount without any other benefits, and you don’t shop at the store often, it might not be a good idea.
When you apply for a new card, it can affect your credit score a bit because it’s a hard inquiry, which is a credit check by lenders when you apply for a new credit card. Too many hard inquiries can make you look like a risky borrower.
- Pay off the full balance
Setting up autopay is a great option if you are forgetful like me. It links your debit card to your credit card and automatically pays what you owe.
It’s important to pay the entire amount you owe. If you only make the minimum payment, you’ll pay more in interest over time.
Do not make any purchases that you can’t pay off at that time.
- Monitor your credit score
Experian is generally regarded as more reliable than Credit Karma, but both services are free. Occasionally, one of the benefits of your credit card is that you can monitor your credit score through their service.
There are many factors that contribute to your credit score, but a few things helped me achieve my current credit score.
Building a good score takes time (I had my credit card for two years) and a lot of patience. Keep in mind that having a good credit score can open up opportunities in the future, like getting low-interest rates on a car or home loans, so use it wisely. Best of luck!