How to Use Credit Wisely as a Young Adult

As a young adult, building and using credit wisely sets the stage for a secure financial future. Here’s how to get started without falling into common traps.

Start with the Basics

1. Get a Starter Credit Card: A secured card or a student credit card is ideal for beginners. Look for no annual fees and low interest rates.

2. Use It Sparingly: Charge small, manageable purchases (like gas or groceries) and pay the balance in full each month to avoid interest.

3. Pay on Time: Even one late payment can hurt your score for years.

Avoid Common Mistakes

• Don’t Max Out Your Card: Keep your balance below 30% of your credit limit to maintain a healthy utilization ratio.

• Skip Unnecessary Applications: Each application triggers a hard inquiry, which can lower your score slightly.

• Beware of Overspending: Only charge what you can afford to pay off immediately.

Build a Strong Foundation

• Monitor Your Score: Use free apps like Credit Karma to track your progress.

• Add Alternative Data: Services like Experian Boost can include rent or utility payments in your credit file.

• Consider Being an Authorized User: If a parent has good credit, ask to be added to their card to piggyback on their positive history.

Why It Matters

Good credit in your 20s can lead to better loan terms, lower insurance premiums, and easier apartment rentals. For example, a strong score could save you thousands on a car loan compared to a subprime borrower.

Final Advice

Treat credit like a tool, not a toy. By starting small and staying disciplined, you’ll build a credit score that opens doors to your financial goals.