March 14th, 2013

Build Your Credit Early or Pay For It (Literally) in Your 20’s

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build credit early

The most savvy consumers know that building your credit throughout your teenage and college years is crucial when it comes to loan interest rates and approvals in your 20’s and 30’s. The majority of us, however, have no clue how important it is to build your credit early. When I graduated college and went looking for a car loan, I was firmly in the clueless majority and was about to join those consumers who had learned the importance of building credit early the hard way.

Here’s what happened…

I got my first credit card when I was 19. However, I rarely used it, with the exception of the time I swiped two music festival tickets on it – two tickets I really couldn’t afford, by the way – and ended up paying them off over the course of the next year or so. Other than that one lavish purchase, I considered myself to be a pretty credit-worthy consumer; I rarely used my card, I made on-time payments every month, and I racked up next to no debt.

Upon graduating college, my credit score was in the good-to-excellent range, and I had (finally) paid off those concert tickets. So after moving to California and realizing pretty quickly that I was going to need a vehicle to get around, I was confident that I’d be handed a loan for a used car in no time.

You’re not going to believe this, but that isn’t how it worked out.

The first car I tried to buy was a Toyota Corolla that was selling for $7,000. I had $1,500 to put down and a full-time job (albeit with an entry level income). And yet I couldn’t get financing because of my lack of credit history. I ended up walking off the lot disappointed. Emphasis on “walking”.

I then decided on a new strategy. I picked out a Ford Focus online, made my way to the dealership, gave it a test drive, and was ready to buy. The dealer was able to find me financing (or so I was lead to believe), and I happily drove my new car off the lot.

Two days later, I received a phone call from the bank I was told had lent the money to me. They told me I was denied the loan, citing “credit history” yet again. So now I had a car sitting in my parking lot that I could not afford and a down payment that had already been cashed. It was time to call some banks.

After a few disappointments with big banks, I walked into a local credit union. Credit unions are awesome. Every good thing you’ve ever heard about them is probably true, and on my fourth loan attempt, I was finally able to secure a three-year loan with a decent interest rate and low monthly payments. When I asked the personal banker why it was so hard for me to get approved, she confirmed what I had heard a handful of times: “limited credit history”. Got it.

So please learn from my mistakes and avoid future fiascos by building your credit early. Here are some tips for doing so:

  1. Dust off that credit card and start using it….

    …But make sure you’re paying it on time and in full each month. Your credit score and health will improve significantly over time if you make one or two payments on your credit card each month. If you don’t carry a balance (which is a good thing), that means making purchases every month and paying them back on time.

    Racking up a solid payment history is the most important factor in improving your credit history.

  2. Open up a new credit card account.
    Another easy way to improve your credit history is to open up a new credit card account. Having multiple credit accounts looks good to lenders because it shows you can maintain more than one account responsibly. It also helps to diversify your credit. If you are able to maintain and pay off two credit card accounts, plus another account (like student loans), you should be in a good position to get approved for a loan.
  3. Ask your current credit card company to extend your credit line.
    No, not because you plan on racking up a ton of credit card debt. Extending your credit line improves your credit utilization ratio – the amounts you owe (your debt) relative to your total available credit line.

    This actually won’t improve your credit history significantly, but it will improve your credit health… and anything you can do to improve your chances of a low interest rate is worthwhile.

Moral of the Story: If you have a solid credit score, keep doing what you’re doing – only better. Accelerate your payment history, diversify your credit profile with a new credit card, and extend your available credit lines early to enjoy the fruits of a solid credit history in your 20’s.



This guest post was written by . Jason is the editor of, an online authority on credit repair, personal finance, and credit card reviews.

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  1. If you budget carefully, you can easily use your credit cards and pay them off- building your credit score and history without actually accumulating any debt. Write out a budget and stick to it!

    Dona Collins at 9:39 am on March 14, 2013
  2. I totally sympathize! One of my close friends got a credit card in high school and I laughed at her. Now I’m regretting getting my first card at 21. I’m definitely going to take your tips into consideration.

    Charmaine at 11:27 am on March 14, 2013
  3. This is a great idea. I’ll help my son start building credit once he turns 18.

    Paula at 8:19 pm on March 16, 2013
  4. A secured credit card is a great place to start if you have no credit history as well. They are easily approved and your monthly payment history is reported to the 3 credit agencies so you can build up a good credit score in no time.

    Sam@CreditCardShoppe at 1:31 am on March 17, 2013
  5. this web site gets there info from other reporting agencies that is complete bullshit , all my bills are paid on time except medical which was not suppose to effect your credit but your all full of shit. and my score is 627 for months even after selling my house and 560 at another agency what a crock, there all bullshit.

    joe poehler at 3:59 pm on March 27, 2013
  6. Jenna

    Hi Joe, Credit Karma gets all the information you see from TransUnion. If something’s wrong with your information, please contact TransUnion directly. Thanks!

    Jenna at 7:35 am on March 28, 2013
  7. I bought my first car for cash….$1150. Financed my 2nd car for about $2000 and paid it off early. Then my 3rd car was $6500 and I financed it and paid it off early.

    Hardest thing for me way back when was getting a mastercard/visa.

    Wasnt having ANY luck on my own. Ended up finding a bank (wasnt many credit unions around back then) who let my dad cosign for ONE year so they said. They said that his cosign would come off after 1 year without missing a payment. Not sure if that was true or not.

    In my early years, I admit I exageratted the truth regarding my income but never defaulted on anyone.

    I was in a hurry to build up credit because I knew I was going to start my own business and thought I would need it. I did need it a little at first but other than a short term cash advance on my discovercard for about 3 weeks, I never needed anymore.

    Back then I went down to sears & got a cash advance. They didnt charge fees back then, just the interest. It wasnt a great rate but I only needed it for 3 weeks and I made about 10 times what it cost me to borrow.

    Never did buy a more expensive car and never financed a house. About 8 years ago I paid cash for one.

    I still obsess about my credit scores but chances are, I will never again borrow.

    Back when they had zero % balance transfers & cash advances, I would do those & just collect the interest but those deals dont happen any longer.

    will at 3:35 am on April 3, 2013
  8. Another way to potentially build one’s credit is to have parents add their children as authorized users to their credit card accounts. Many even allow authorized users well before they’re 18. I know American Express, among others, allow minors to carry a card. Just ask the issuer. Parents can limit the amount charged by their kids in some cases. My son was an authorized user our AMEX, Dillards, and JC Penney accounts. When he first turned 18 we went to the credit union to get a CC of his own. His credit score was 758, even qualifying him for the “Premier” rate.

    Jim at 6:52 am on February 18, 2015

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