I was recently asked by a darling 20-something gentleman, who graduated from college in the last few years, how he can begin building his credit now that he has a budding career and eyes on his financial future. His question is a great one and so relevant to this time of year when we here in the New York City area welcome a new crop of recent college grads that descend upon our city to take on new jobs and launch their careers and their new lives post college. Building healthy credit is an important part of growing up and so I have a few tips for all of you early on in your financial lives and careers:
Tip #1: Plan how you will use credit. If you do not have a plan or set of values for how you will handle credit, it's so easy to get carried away, especially as you are starting a new life and may run into lots of unexpected expenses. However, you can use credit cards to help build your credit so that in the future you can buy a home or attain other financial goals you have.
Here's my plan if I were in your shoes: If you are like most millennials, you probably have a good deal of student loan debt, so my advice would be to pay as much extra money as you can toward your student loans, always paying on time, of course. Get a credit card, but set a goal to never use your credit card for anything that you cannot pay cash for.
Tip #2: Get one credit card and use it wisely. The healthy way to use a credit card is for small, regular bills that you can pay off each month, such as linking your cell phone bill to your credit card. This will help build your credit score while avoiding the temptation to use your credit card for everyday expenses. If you find yourself charging up high balances or using your credit card for regular expenses because you do not have cash you need to pay down your balances, put yourself on a budget, and avoid charging too much.
Tip #3: Make it a habit to check your credit report. As you begin to build credit you need to regularly check your credit report to make sure there are no errors or signs of identity theft. If you spot anything wrong, report it to the credit bureaus with the error right away and they will walk you through the process of fixing the problem. No matter our age or generation, we all need to remember to remain vigilant in checking our credit reports about twice a year ideally and no less than once per year. Visit www.annualcreditreport.com to pull your credit report and set a reminder for yourself to check it regularly.
For all of you millennials embarking on new careers and new lives, congratulations! Enjoy your new financial freedom responsibly and you will be richly rewarded.