5 Steps to Improving Poor Credit

Everyone knows what a credit score is and why it is important to have an excellent one. The bad news is that most people struggle with achieving this goal. This particularly true for college students and recent college graduates.

Why do young people struggle with developing a good credit score?

Before you can begin to work on improving your credit score, it is important to understand the unique struggles that young adults face.

They do not have credit cards.

Although making regular payments on a credit card is one of the best methods of improving a credit score, young adults face hurdles when it comes to getting one. For example, most young people must be 21 years of age before they are able to obtain a credit card in their own name – without a cosigner.

The Credit Card Act of 2009 made it more difficult for young adults to obtain credit cards by barring credit card companies from advertising on campuses without the express consent of the school authorities and by barring these companies from sending credit offers to students under 21 without their express consent.

A young age works against you.

One of the most significant factors that determines a person’s credit score is how long their accounts have been in existence, and being young presents a unique challenge. A 21 year old young adult simply will not be able to have an account that is mature as that of a 45 year old who has loan obligations for as long as 20 years.

How Can Young Adults Improve Their Credit Score?

Get a credit card (but use it wisely).
When a young person is finally able to get a credit card, they shouldn’t automatically sign up for the first one they see. Be smart. Ideally, young adults should look for a credit card that is tied to a bank account. The bank account serves as collateral. This is an excellent option for people who have little to no credit history.

Ask parents for assistance.

Getting a credit card may entail asking mom and dad for assistance. If a student’s parents have good credit, they can cosign on the account, which will then allow their child to become an authorized card holder. This also provides an opportunity for parents to teach their children responsible spending habits and the importance of timely monthly payments.

Whatever it takes, payments must be made on time.

Because payment history is one of the biggest contributing factors in calculating a credit score, it is imperative to make payments on time. In fact, payment history accounts for 35% of a person’s credit score. It will take up to 7 years for late payments to be removed from your credit history. Ideally, a young adult with their first credit card should set up payment reminders so they’ll always be on time with their payments. Alternately, they can also set up automatic payments from their bank account. This will guarantee that they are never late.

Students can tie their college accommodations to their credit score.

If a student is renting a home or condominium (rather than living on campus), then their monthly rent payments usually won’t be included when their credit score is being calculated; however, these payments can now be added to their score via third party companies, like RentTrack.com or RentReporters.com.

Although this is a relatively new practice, financial experts say that it can boost a young adult’s credit score by the double digits. If a student is certain that he or she and their roommates can make rent payments on time each month, then this might be worth considering.

Check your credit score frequently.

At a minimum, credit reports should be checked once a year, and each report should be carefully reviewed. Particular attention should be paid to the amounts of money one owes and to any payments that may have been mistakenly marked as late. There are websites online that will allow you to get your credit score or your credit report for free once a year.