20 Easy Ways Millennials Can Build Credit (2024)

When it comes to attaining major financial goals in life, millennials could be in for a rude awakening. According to a study by ValuePenguin, nearly 40 percent of people age 30 or younger have credit scores of 620 or less, which is considered as having poor to bad credit.

Young consumers might not realize how much of an impact their credit, especially bad credit, can have on their lives until they are in the market for a car, apartment or mortgage and run into trouble. Fortunately, though building credit and credit knowledge might seem daunting, it’s more boring than difficult. To minimize the boredom, take a look at these 20 ways you can learn how to boost your creditworthiness.

Before you ever open a line of credit, check your credit report for any fraudulent activity. Getting into the habit of checking your report is a great way to keep tabs on your growing credit score. Similarly, look into credit monitoring services.

Credit monitoring keeps track of your lines of credit — like student loans — and the retailers and services you’re paying. With the vast majority of financial transactions carried out online, credit monitoring is a valuable service to ensure no one has hijacked your identity and opened fraudulent accounts.

Find Out: Your Credit Score and Get Started Building Your Credit

Your credit score is a metric that helps you and lenders determine your creditworthiness — or how reliable of a borrower you are. One of the most common credit score metrics is your FICO score, which is based on five factors.

• Payment history: Accounts for 35 percent and reports on your payment of past credit accounts
• Credit utilization: Accounts for 30 percent and reports on the amount of debt you carry compared to your available credit
• Length of credit history: Accounts for 15 percent and reports on how long your credit accounts have been established and how often you use them
• Credit mix: Accounts for 10 percent and reports on the variety of credit accounts you use
• New credit: Accounts for 10 percent and reports on the number of new credit accounts you open

FICO scores range from the worst possible score of 300 to the best possible score of 850. If you’re looking to take out a loan in the near future, you have a better chance of qualifying for one with a good interest rate when you have a higher FICO credit score.

In general, credit bureaus and institutions consider a score in the high 600s to low 700s to be a good credit score. Scores in the mid- to high-700 range are considered very good. Anything above that range is considered excellent. On the other end, credit scores in the 300-579 range indicate bad credit. If you need a short-hand answer for what a good credit score is, credit experts usually cite that any score above 680 is good, meaning you’re less likely to be seen as a risk to lenders.

One of the most fundamental steps in establishing and building credit is ensuring you pay your bills regularly and on time. It might sound boring, but paying bills on time plays a huge role in determining your credit score.

Payment history, namely the consistency of making payments on debts, comprises 35 percent of how your credit score is determined. Payments on everyday bills, such as for utilities and credit cards, are reported to credit bureaus. You can really make this system work to your advantage by paying your bills consistently on-time. Automate bill payments if you can’t remember or aren’t punctual.

A key factor in optimizing your credit card usage is knowing what credit utilization ratio means. It is the ratio of your credit card balance to your credit card credit limit.

Credit bureaus consider a lower utilization ratio a positive sign because you’re not spending too much compared to your limit. For instance, if you have a credit card balance of $1,500 and a credit limit of $5,000, your credit utilization ratio is 30 percent. Going over this ratio is bad because you will start to harm your credit score.

If you have damaged credit or your lack of credit history is affecting your ability to open accounts, look into getting a secured credit card.

A secured credit card is different from traditional credit cards because you have to pay a deposit that serves as collateral for purchases you make. If you default on payments, the card issuer keeps your deposit. Typically, if you use a secured credit card responsibly for six to 12 months, you can consider applying for a traditional card, which usually comes with better terms.

Even before you get a credit card, you need to approach credit with caution. Whenever you apply for a credit card, loan or similar financial product, the bank, financial institution or lender will run a hard inquiry of your credit report.

A key thing to know is that applying for new loans and credit cards hurts your score in the short-run. The reason why your score can drop is because each new application signals to credit bureaus that you are taking on more financial obligations. The lesson to building credit: Only apply for new credit when you really need it.

A good option if you’re not ready to take on a credit card on your own is to add yourself as a joint account holder. Actually, you’ll need to ask a person close to you, such as a parent, sibling, spouse or friend, to add you as a joint account holder.

As a joint account holder, you’ll be just as responsible for making payments on the card. This means the primary account holder is accountable for your credit card activity, and vice versa.

Another option to build credit is to get a gas station credit card. For many Americans, cars are a fact of life, so why not build credit by paying for gas with credit?

Because fuel expenses are part of so many people’s budgets, using your credit card for gas isn’t adding extraneous, unnecessary expenses. You can easily pay off your balance each month, or even after each time you fill up.

You can harness the potential credit-building power of a personal loan, but you might have to wait a bit. You should establish a few lines of credit via credit cards before taking out a small personal loan. Just be aware that it takes a little time for a personal loan to boost your credit score.

Personal loans can be useful to building credit because credit bureaus reward you if you have been making consistent, on-time payments over a long period. Once again, it might sound counterintuitive, but you should wait to pay off your personal loan because by extending the period you pay back the loan, you’re demonstrating the ability to make consistent, monthly payments to credit bureaus.

Not only do you need to keep track of different credit cards. You also need to know what different types of credit accounts exist. In general, there are two main types of credit accounts.

First, there is installment credit, which you commonly encounter when borrowing money, such as with auto loans. With a five-year auto loan, you’ll usually have to make 60 payments in total on a 60-month loan term. Each payment installment works toward reducing your loan balance and utilization ratio, so that eventually your balance will be zero and the loan paid-off.

Revolving credit, on the other hand, are lines of credit like credit cards. They offer a defined credit limit and minimum monthly payments you make. Additionally, these lines of credit charge interest on balances you carry from month to month. Unlike installment credit, there is no pre-determined end to your line of credit with a credit card whereas, once you pay off the final month of your car loan, your line of credit is closed.

Credit bureaus and creditors generally classify you as a transactor or a revolver when it comes to lines of credit like credit cards. Your aim with your credit report is to be considered a transactor rather than a revolver.

To be classified a transactor, you need to spend a certain portion of your credit limit — ideally maintaining a low utilization ratio — and pay the balance in full consistently every month. On the other hand, as a revolver, you might charge $1,500 on your $5,000 credit limit in one month, yet pay back only $1,000 of that amount. As a result, you will carry a balance of $500 on that card, and therefore, are revolving that credit balance.