How to Build Good Credit Early as a Young Adult

If you're part of Gen Z or a younger millennial, you may feel wary about getting a credit card. With horror stories of friends or family members falling into credit card debt, it's understandable to want to avoid those shiny pieces of plastic altogether. However, when used responsibly, a credit card can help in building your credit history early and set you up for financial success down the road. At Florida Credit Union, we know figuring out where to start can be tricky. That’s why we put together this quick guide on how to start building good credit even if you're young and new to personal finance.

What Exactly Is Credit and Why Does It Matter?

First things first, credit refers to your ability to borrow money and pay it back later. When you use credit cards, loans or other lines of credit and pay back what you owe, it shows lenders that you can responsibly manage debt. Your creditworthiness is summarized in your credit score, a three-digit number usually between 300 and 850 (or even 900 in some cases, like we at Florida Credit Union use).

The higher your score, the lower risk you look to lenders. So, you get approved for more credit and better rates. Scores are based on your payment history, amounts owed, credit history length, credit mix and new credit accounts, and the most weight is on whether you pay bills on time.

How Do Credit Cards Fit In?

Credit cards let you borrow up to a certain limit and pay it back monthly. Making on-time payments shows lenders you manage credit well, which can help boost your score. Cards also help build your score by increasing your total available credit, which is the combined credit limits on all your accounts. Having more available credit means you can use a smaller percentage of your total limit each month. This keeps your credit utilization ratio low. Just be sure to not overspend and carry large balances, which raises your credit risk.

Why Start Building Credit Early?

Building credit now leads to better loan rates and more credit opportunities down the road. With a good score, you can qualify for rewards credit cards with nice perks and sign-up bonuses. Waiting to establish credit history can cost you thousands over your lifetime in higher interest charges. So, start wisely and responsibly with a starter card now to set yourself up for later success.

Get a Credit Boost by Becoming an Authorized User

If you’re not quite ready for your first credit card, one smart way to build credit faster as a young adult is to become an authorized user on your parent's or guardian's credit card account. This allows you to benefit from their long credit history and on-time payments. Their positive activity gets added to your credit report, boosting your score.

Just make sure the primary cardholder has strong credit, low balances, and no missed payments. Discuss credit limits and spending expectations too. As an authorized user, you typically get a card in your name tied to their account. Use it lightly and pay on time to quickly strengthen your credit profile.

Get a Starter Card and Use It Responsibly
The first step to building your credit in your early years is to open a credit card. But what should you be looking for in a new card? Things like no annual fees, fraud protection, and solid cash back or rewards are things to keep an eye out for. Ultimately, it all depends on you and your needs, as well as your history with credit. If you have little to no credit history, our Fresh Start card is a viable option. While it carries a higher rate and an annual fee, you can quickly graduate to a better card after building good credit history.
Once you have a card, you can use it for regular expenses like gas or groceries, but be sure to pay the balance in full monthly. Paying on time and not carrying a balance indicates to lenders that you manage credit well. 

Stay on Top of Your Credit Card Activity

Once you have a credit card, be sure to monitor your spending and credit score regularly. Sign up for your card issuer's mobile app and enable notifications so you can stay on top of transactions and keep your utilization low. Apps like Florida Credit Union's make it easy to track spending.

Your monthly statement will also show your current credit score so you can see how your activity impacts it over time. Review statements closely and don't miss payments. If your card offers it, set up autopay for at least the minimum due.

It's also important to budget so you don't overspend just because you have a grace period to pay. Know your income, expenses and what you can realistically afford to charge each month. The goal is to maximize rewards while avoiding interest charges. With responsible habits, credit cards can be a useful took in building your financial future.

Pay Your Bill in Full to Boost Your Score

One of the best things you can do for your credit score is to pay your credit card bill in full every month by the due date. This shows lenders you aren't over-reliant on credit and can manage what you borrow responsibly.

Carrying a balance and accruing interest dings your credit utilization and suggests you struggle to pay off debts. Even if it's a small purchase, not paying in full indicates higher risk and lowers your score. So be sure to only charge what you can afford to pay off each statement period. Pay by the due date to avoid late fees and negative marks. Over time, a track record of paying your balance in full on time will significantly boost your credit score. Just be realistic about spending and stick to purchases you know you can pay for right away.

Building credit takes time and responsible habits, but it's worth it. Good credit means better interest rates on future loans for a car, home or further education. It also unlocks more rewards credit cards with sign-up bonuses and perks. So be strategic, patient and proactive as you begin your personal finance journey.