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How I Built an Excellent Credit Score By My Early 20s

Jenna Lee

I was 22 when I checked my credit score for the first time. To be honest, I didn't particularly want to (because I was nervous), but I had just started working at Credit Karma, a free credit score site, and figured I should probably brush up on my credit knowledge. To my pleasant surprise (and slight disbelief), I didn't have anything to worry about -- my score of over 750 fell into the "excellent" range and was better than 99.8 percent of others my age.

In retrospect, I was pretty lucky to have such a great score. Before I began working, I didn't know what factors went into credit scores or what could hurt or help my score -- I just knew I should pay off my credit card on time. Fortunately, that's probably the best thing I could've done for my credit health, as a large part of building creditworthiness is proving you're a reliable borrower who is able to pay off debts in a timely manner. In addition, I unknowingly had other factors going my way.

It turns out that building a great credit score can be pretty easy if you nail a few key habits. Here's how I did it and what I'm doing to maintain it:

I got a credit card early.

Then: When I was in high school, my dad signed me up for my first credit card. While handling a credit card at such a (relatively) young age isn't the best decision for some people, he knew that I had saved up a good amount of money, was extremely frugal and was responsible enough to pay my bills on time. He also knew that by getting a credit card early, I'd be able to start growing my average age of open credit lines, which is a factor many credit scoring models emphasize. Now, even though I'm still young, my oldest account is seven years old and my age of credit history just keeps rising.

Now: Even though that card I got in high school doesn't have as high a credit limit or as good of a rewards program as my other credit card, I keep it active and open to ensure my average age of accounts in good standing. While I use my newer credit card a lot more, I try to use my old card once a month to purchase a small item and then immediately pay the balance.

I paid my bills on time.

Then: As mentioned earlier, knowing the importance of paying bills on time was pretty much the extent of my credit knowledge, so I made sure to follow this rule religiously. Since I wasn't charging too much on my card, all I had to do was remember to pay the bill, which was easy to do as the credit card company sent a statement each month. I quickly built up my on-time payment history, which has probably done more for my score than any other factor. Each time I made a timely payment, I proved to current and future lenders that I could handle debt responsibly. Paying each bill on time also helped me avoid accounts in collections and other derogatory marks that could have damaged my score for years.

Now: Having a steady job has made it even easier to pay my bills on time -- I simply pay ever card that has an outstanding balance each time I get paid. This way, I know I have the money I need to pay everything off.

I kept a low balance on my credit card and spent less than I earned.

Then: This was probably the toughest to do, as my credit card didn't have a large limit and college is expensive! Additionally, I had no idea that creditors cared about the amount of money I was charging -- I thought that as long as I paid bills on time, they were happy. However, I'm a pretty frugal person, so I never spent money I didn't have and constantly looked for ways to cut costs. For example, during college I would buy used books, cook most of my meals instead of eating out and visit home a lot (which usually resulted in free groceries and laundry sessions ... hurray for parents!).

Limiting the amount of money I charged was great for my credit score because most scoring models care about your credit card utilization rate, which you can calculate by taking your total balances and dividing by your total credit limits. By using a low percentage of my credit limit each month, I consistently showed that I wasn't reliant upon credit, a positive in the world of credit scores.

Now: Earning a steady paycheck has definitely increased the temptation to spend. However, I'm still doing everything I can to keep my credit card balances low. I always look for coupons and deals, limit how often I eat out and take public transportation to work every day. Simple sacrifices like these are great ways to save money while simultaneously keeping your utilization rate and credit health happy.

I didn't apply for more credit than I needed.

Then: Confession: I didn't avoid applying for more credit because I knew it could hurt my score. I was simply scared of being rejected and thought having too many cards might result in me losing track and forgetting to pay all of them. Luckily, these two factors worked in my favor, since I had few hard inquiries on my credit report, and hard inquiries can negatively impact your credit score.

Now: Although I'm no longer scared of being declined, I've decided to limit how often I apply for credit, as I don't currently need more, and I don't want to risk the hard inquiries possibly dropping my score.

The Bottom Line

While knowing how credit scores work early on in my credit journey could have helped me achieve an even greater score, it's possible to build a great score simply by getting credit early, paying bills on time, minimizing charges and applying for credit with caution. Great credit isn't just for the old or super financially savvy -- all it takes is a few good habits. Good luck!

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