Used responsibly, credit cards are the best way for young consumers to build your credit. Hands down.
One of the easiest ways to use your credit card is to think of it like a debit card. The same way a debit card draws money directly from your checking account, your credit card should only be used on expenses you can afford to pay immediately. One of the biggest pitfalls is using your card to cover expenses you can’t afford; it will end up costing you even more in interest in the long run. Ensure that you can pay your balance in full each month.
Also, keep your spending in check by setting your monthly spending limit at 30 percent of your card’s credit limit. Keep your credit balance below this limit at all times. This will help boost your credit score because credit use makes up about 30 percent of your credit score. Enroll in balance alerts, if your credit card issuer offers it, to alert you if you are approaching your spending limit.
Finally, set up calendar, e-mail, or text alerts (or all three!) to remind you to pay your monthly credit card bill. Payment history makes up a whopping 35 percent of your credit score. Being late a single day will incur a late fee of around $35, and being late over 30 days adds a negative mark on your credit report. Even if you can only afford the minimum payment, always pay your credit bill on time.
– Justine Rivero is the credit advisor for Credit Karma, a credit management and education company for consumers and based in San Francisco.
