Money guide for Millennials
Improving your credit score is one of the best financial moves you can make. Those three little numbers can help you land a cheaper loan, an apartment or even a job.
"A good credit score, as you move through life, it can save potentially tens of thousands of dollars," said with Rod Griffin, director of public education at Experian.
Besides helping to secure better loan terms, a strong credit score can also impact other areas of life. Landlords, cell phone and utility companies and employers are known to check credit reports.
But a good credit score doesn't happen overnight.
"It's hard to build a strong credit history quickly from scratch," said Gerri Detweiler, director of Consumer Education at Credit.com.
The median FICO 8 score, which is the most commonly-used FICO credit score, for Millennials is 662, lower than Generation X's 680 and Baby Boomers' score of 734.
Since it takes at least 18-24 months of payment history to create a strong credit score, according to Detweiler, there's no time like the present to start building your score.
1. Open up a credit card and keep it open. The age of accounts and payment history are key pillars to a strong credit score. So the earlier you open up a card and use it responsibly, the better.
"With a credit card, you decide how much you are going to charge and repay of those charges," Griffin said. "Credit cards give better insight into how you make independent borrowing decisions."
Credit mix is also a factor in determining a score, so having a car or student loan payments and a credit card can help increase your score, as long as you don't fall behind on payments.
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2. Become an authorized user. If you can't qualify for a credit card on your own, look to become an authorized user on someone else's card. While you're authorized to make charges, that person does not necessarily need to give you access to use the card. But you'll still get the benefit of the card's credit history.
While you won't be responsible for the debt, your score will suffer if the account holder falls behind or misses payments.
"Make sure the [card holder] has a perfect payment history on the account and low balances in comparison to the available credit," advised Detweiler.
Secured credit cards, which need a cash deposit or be backed by a savings account, can also help establish credit history.
3. Keep your utilization rate low. Just because you have a credit line of $1,000, that doesn't mean you should charge that much every month.
Consumers with the highest scores tend to use 10% or less of their available credit, according to Detweiler.
However, she added that people without a lot of negative items on their report tend to be safe in the 20-25% credit utilization range.
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4. Pay off big purchases early. If a purchase uses up a good chunk of your credit line, you may want to consider paying that item off before the statement is due.
Most credit card issuers report account balances to the credit bureaus at the closing date, explained Detweiler, so paying the item off before the bill is due helps keep the utilization rate low.
But don't make this a habit. "The only danger is if you consistently pay off a balance and it constantly shows a zero balance, that could work against you."
5. Pay your rent on time. Some credit bureaus take rent history into account.
While reporting on-time rent checks is still catching on among property managers, Griffin said the number is growing and that renters can ask for their payments to be submitted.
"In the past, if you failed to make a rent payment it would go into collections. The negative activity appeared for quite a long time," said Griffin. "By reporting positive activity, we are able to help those people who had no advantage of paying rent on time from a credit score perspective."
6. Know your credit situation. It's hard to improve what you don't know.
Federal law mandates one free credit report a year from the three main credit reporting companies: TransUnion, Experian and Equifax at www.annualcreditreport.com.
A 2013 study from the government claimed 1 in 5 consumers had a mistake on at least one of their reports. Correcting an error can take time, but can immediately improve your score.
If you've never reviewed your report, Detweiler recommended getting all three reports at once to compare and look for mistakes. "After the first year, stagger every four months."
CNNMoney (New York) First published July 6, 2015: 10:41 AM ET
