Helping Millennials Build Credit
A Twitter follower asked us how should millennials build credit from nothing, as a recent college graduate. This is a great question that young adults have asked for ages. It’s similar to the question, “How do I get experience for the job I want when no one will hire me for the job I want.” Though the questions are similar, the answer to the first is easier to find than the second.
How should millennials build credit? Here are our three best ways to do it without getting into a credit nightmare.
Be On Time!
Ten years ago this may have been harder than today since most young people didn’t have bills. Today, by the time kids are in high school, most have their own cell phone and some even have their own credit cards. (Whoopsy, Mom & Dad!) If, by the time you graduate college your name isn’t already listed on your cell phone bill, make yourself the primary and singular responsible party to pay your cell phone bill. You are a grown up and don’t need to rely on the ‘rents. This should take no more than a phone call or letter to your phone carrier. Once this bill is in your name, pay it on time and in full each month.
Any new bills you take on now that you’ve graduated and are on your own, such as utility bills, cable and WiFi should be paid on time and in full each month. If you are sharing a place to live, including with your parents, put at least one bill in your name and pay it faithfully. Remember to be #MoneyConscious and aware of how many bills you have and how much they will cost you. Don’t take on too many expenses. Your goal is to display your capability to manage your monthly expense to income ratio. If you take on too much and miss payments or don’t pay in full on any, you will damage what little credit you have.
Be a Borrower
No not the tiny people that take “lost” stuff. Work with your local bank or credit union to borrow a small amount of money, such as $250 or $500. Put the money aside in another account and don’t spend it. Then, set up a repayment schedule of 6-12 months and pay the money back on time and in full. Two things will happen for you. One, you will have a balance in an account which lenders like to see and, two, you will create a repayment history. Your history is the number one item that adds to your credit score. As a side benefit, you will learn to sit on money and not spend it right away. Maintaining a balance in your bank account will teach you patience and savings.
Charge That Gas
That’s right. We recommend that millennials build credit with a, shocking, credit card! You probably need to pay for gas anyway. As soon as you can, open a credit card at your regular gas station. Gas station credit cards can only be used at the gas station for which you apply for credit. Use it only for gas, not when you get the munchies. Factor your gas expense into your monthly budget and pay your balance on time and in full each month or week. It might be good to set it up an automatic payment to your gas card with each paycheck. Credit limits on gas cards are often low, so you may be able to get approved for a gas card sooner than other types of credit cards. Keep in mind that this card is like training wheels for other types of credit. We don’t typically recommend using credit cards, but this is an exception to help you build a credit history.
Finally, to help millennials build credit, there are several points that we should drive home about credit scores. You won’t build a great credit score overnight, it takes time. Good credit scores are only for those who show themselves to be responsible with the credit they have. Never borrow more than you can afford. Your goal is to display your capability to manage your monthly expenses. It’s easier to build credit than to repair it. Mistakes will hurt you. We hope you can avoid them.
Good luck with building your credit history. Be #MoneyConscious and you will have a great credit score and credit history soon enough.