The 800+ Fico-Score Club is prestigious one, but 20-somethings can still get in – even if they make some mistakes along the way.
We asked two young people who achieved 800+ scores in their 20s to tell us about their very different credit journeys – and to share their advice.
Jennifer P., Owner of Save to Splurge: 802 score at age 26
Jennifer P., who blogs semi-anonymously at Save to Splurge didn’t realize she had a score of 802 until she was sitting in the showroom at the car dealership, applying for financing for her first car.
Jennifer’s credit journey began when she was in high school. Her mother co-signed a card with her, a technique parents can use to prop up their children’s credit before they can qualify for cards on their own.
After starting college in 2004, Jennifer opened several cards on her own, which she used for daily living expenses like food and gas. While she didn’t always pay in full, she paid on time. She also used only a small amount of her total available credit.
Flash forward to age 26. While Jennifer waited for the car salesman to run a credit check, her father expressed concern that she wouldn’t get a favorable interest rate.
“He was worried that the length of my credit history wouldn’t be enough to prove I was a responsible borrower,” she says. “He had no idea I carried credit card debt in college.”
Then the salesman announced she had one of the highest credit scores he’d seen for someone her age – 802 – and that she was eligible for a 0.9 percent interest rate.
“I played it off like it was no big deal, as if I had known what I was doing financially all the time,” Jennifer says. “But, on the inside, I was high-fiving myself.”
Jennifer has maintained excellent credit since then. She pays on time and in full, and her steadily increasing average age of accounts has only bolstered her credit health, which is now extra important as she and her husband are planning to buy a house. She readily admits she essentially lucked into excellent credit.
“If I stumbled through my finances in college and ended up with an 800+ credit score, anyone who just read this story can do the same,” she says. “You know way more than I did when I was your age.”
Keola Harrington, financial counselor at Clarifi: 816 score at age 28
These days, Harrington helps clients of all ages build credit and recover from their mistakes. As a newly-minted adult, though, she made some credit mistakes of her own.
“I messed up horribly,” she says.
Upon turning 18, Harrington began receiving card offers in the mail and couldn’t resist. She was quickly approved for several cards, all with small limits.
“I applied for a bunch of cards, and I maxed them out immediately,” she says.
Harrington left for college soon after and wasn’t able to keep up with payments. The cards went into collection, and her score tanked, hitting a low of 400. After graduation, she started working with AmeriCorps. Although her income was low, she was ready to turn things around.
“I started becoming aware that I needed to get this together, because without good credit, I wasn’t going to be able to do anything I wanted to do, like purchase a home or a car.”
For the next three years, Harrington routed her tax refunds toward her debt and stopped using cards completely. When she started working at non-profit financial counseling organization Clarifi, she got a secured card, charged small purchases each month and paid in full. Within three months, her score had risen 90 points. When her old, formerly delinquent accounts hit the seven-year mark, those fell off her report, pushing her score into the upper- 600s.
In 2014, Harrington says, she made a bolder move – applying for a line of credit with her bank. Her initial request for $5,000 was denied, but, because she had a relationship with the bank, she was able to negotiate a $3,000 line. Treating that line of credit responsibly nurtured her score, which is now more than double what it was at its lowest point.
“I actually checked my score the other day, and it’s 816,” she says. “I was ready to cry. It’s been a hard journey, but it’s rewarding. I’ve learned so much.”
These days, Harrington is cautious and responsible with credit. Her student loans are on time, and, when she (rarely) uses her cards, those get paid on time, too. She even has a travel rewards card with premium benefits (trip insurance and rental car coverage), which came in handy on a recent trip to Dubai.
How 20-somethings can get on the credit-building fast track
Many young people, Harrington suspects, learn about credit building through trial and error like she did. If you want to avoid trials and errors, follow these steps to get excellent credit in your 20s.
- Consider help from mom and dad: If a parent (who has good credit) is willing to co-sign a credit card for you, that can give you a boost. It’s worth noting that Harrington and Jennifer were both able to get cards independently before the CARD Act of 2009 went into effect. These days, applicants under 21 must prove sufficient independent income to qualify for cards. So having a parent co-sign an account may be one of the only ways the under-21 crowd can get a card.
When Jennifer’s mother helped her get a card in high school, it started her on an easier path toward good credit.
“Her reasoning behind getting me my own card was to help establish and build my credit,” Jennifer says.
Just make sure you’re not coasting, Harrington warns. Learn the fundamentals of credit building so that, when you can qualify for a card on your own, you’re ready for the responsibility.
“A lot of times [clients] say, ‘I don’t know what to do — my parents got me this card,’” Harrington says. “They might have a 700 credit score but no idea how they got there.”
- Pay on time: Late payments will drag down your score for seven years. While paying only the minimum is not advised (because you’ll have to pay interest), FICO’s credit scoring models won’t penalize you as long as the payment arrives on time. Just ask Jennifer, who carried balances throughout college and still got into the 800 club.
If you absolutely cannot pay in full, “set up auto-pay for the minimum payment amount, so you never miss a payment,” Jennifer advises. “Then, if you can afford to pay more on the card, do it at any time. …That is pretty much all I did in college.”
- Watch your utilization: If you’re aggressively trying to build credit, paying on time won’t be enough. FICO weights credit utilization (how much of your credit you’re using up) nearly as heavily as it does on-time payments. Utilization can be tricky for young people because their limited history will probably get them small credit limits if they’re approved – and best practices require staying under 30 percent of your limit, Harrington says.
“Thirty percent of $300 is just $90,” Harrington says. “That’s a pair of sneakers right there.”
- Don’t open accounts thoughtlessly: Each credit application dings your credit score and makes you look risky to lenders.
“Don’t go crazy opening new credit cards every month,” Jennifer says.
If you can’t resist the offers pouring into your mail box from banks looking for new young customers, Harrington recommends opting out of prescreened card offers.
“If you’re ready for a credit card, you can go find one – they don’t need to find you,” she says.
- Be responsible with your non-credit accounts, too: Harrington was able to negotiate a loan with her bank (and get a vital leg up when her credit was still iffy) because she’d established a good reputation. So be careful about over-drafting your checking account constantly. The bank is watching.
“If I hadn’t had that relationship, it would have just been black or white, approved or denied,” she says. “I always tell young people they need to be careful with all their bank accounts all the time.”