Every young adult I know starts out in a different place when it comes to credit. Some have a head start, some have no history at all, some have student loans, and some have a very low credit limit. Are you looking to start building up your credit history and rating, but don’t know where to start? This blog is for you.
As someone who works in financial planning, I would be remiss if I didn’t state the obvious before I dive in–please ensure that you pay your credit card balance in full every single month. If you don’t trust yourself to spend only what you can afford to pay off every month, that’s okay. It may be wise to hold off on getting a credit card until you are more financially stable. It’s far better to have no credit score or history than to have consumer debt with extreme interest rates.
The very first thing I recommend is downloading the Credit Karma app. This is a powerful tool that will help you monitor your credit history, loans, credit score, and give personalized recommendations on cards that are suitable for your specific situation. It also can help keep track of your net worth and spending, but that is just a bonus feature.
I would then browse through the cards they recommend for you. It will show you approval odds and important details about each card such as annual fees, rewards, welcome bonus, etc. If you are new to credit, it will even recommend cards geared towards beginners since it is personalized. I would recommend only applying for one card to start because every time you apply, it could adversely affect your credit score.
When browsing different card options, it is important to pay attention to the cash back rewards that they offer. For example, let’s say you are not the best cook, so you eat out frequently. A card that offers 3% cash back on dining would be a great idea. If you are already spending the money, you might as well get some money back. Or if you love to travel, a card that gives you cash back in the form of miles or travel points is also a great option.
At the end of the day, it's a good idea to start building up your credit score in your 20s so when the time comes to purchase a home or new car, you can get a better interest rate on your loan!