Twenty Things Every 20-something Should Know About Credit

By Morgan Quinn

If I could relive my 20s again, there are a few things I would do differently. First, I would have called my mom before getting that tattoo. Second, I would have driven right past the animal shelter. And third, I would have paid a lot more attention to my credit. Lucky for you, I learned those lessons the hard way so you don’t have to.

So, after you get off the phone with your mom and finish searching for dog-friendly apartments, read this list of 20 things every 20-something should know about credit.

1. Credit scores range anywhere from 300–850.
Your credit score is an indicator of how much of a credit risk you are to issuers. The higher the credit score, the better.

2. You have three credit scores.
There are three major credit bureaus: Equifax, Experian and TransUnion. Each one maintains a separate FICO score for each consumer in its database. As a result, you have three separate scores and three separate credit reports, which leads to …

3. Credit reports are not the same things as credit scores.
Your credit score is calculated off the information on your credit report. Your report shows your history of using credit, including every open and closed account you have, your payment history, credit limits and balance owed. Your credit score, also known as a FICO score, is based off that information.

4. Having good credit isn’t just about getting credit cards and loans.
When it comes to maintaining good credit, many people think of qualifying for a loan or credit card. A healthy credit history can help you secure financing and save you thousands on interest rates, but it can also lower your insurance premiums, help you rent a place to live or waive certain deposit requirements. According to FICO’s testimony before a House Financial Services subcommittee, its scores are used in about 10 billion decisions worldwide each year.

5. You are entitled to a free credit report from each bureau once a year.
Under the Fair and Accurate Credit Transactions Act, you can get a free copy of your credit report once each year from each of the three major credit bureaus at However, these reports will not contain your FICO scores. You will have to sign up for services or pay a fee to access those.

You can space out your free credit reports so you get one every four months. This tactic helps you maintain a healthy credit report and keep tabs on any potential fraudulent activity.

6. Bad credit doesn’t have to haunt you forever.
Your credit score is just a snapshot of your current credit situation; it will change as your history improves or worsens.

7. There are five factors that affect your credit scores. FICO breaks down your credit history into five categories, each with different weights. The five elements are: payment history (35 percent of the total score), credit utilization (30 percent), length of credit history (15 percent), new credit (10 percent) and credit mix (10 percent).

8. There is no single trick to raising your credit score.
There is no one-size-fits-all path to a better credit score. The best thing to do is request your credit scores and look at the “score factors.” Those will tell you the top four reasons your scores aren’t higher. Once you have identified what is affecting your credit scores negatively, you can start making changes to improve them.

9. You do not need to have debt to have a credit score. There is a popular myth out there that you have to have debt to have a credit score. In fact, some people believe credit scores reward people who have debt and that being debt-free means you will have a credit score of “0.” The truth is, the way the scoring models work means it’s impossible to have a “0” credit score. Also, the scoring systems actually penalize you for having debt. You can pay your balance in full each month to grow your credit score without taking on any debt.

10. Your credit score will not drop if you pull your own reports or scores.
You can check your own credit reports and scores without hurting your credit history. It has no effect on your credit.

11. Making the minimum payment is the worst way to pay off credit card debt. Making the minimum payment is the longest and most expensive way to pay off credit card debt. For example, if you make minimum payments (say, 2.5 percent) on a card with a $2,500 balance and 18 percent APR, it could take you 204 months to pay off the debt and cost you $3,173 in interest. Yikes!

12. Making a payment that is less than the minimum doesn’t count. Making less than the minimum payment counts as a missed payment, which will bring down your credit score, trigger a late fee and possibly raise your interest rate. If you can’t make your minimum payments, call your credit card issuer ASAP.

13. You must use your credit card to build credit history.
Using your credit card should not be confused with keeping a running balance. A smart strategy is to use the card each month and pay the balance off in full. Keep tabs on what you spend so you don’t get hit with a high bill you can’t pay back.

14. Be wary of retail cards. When compared to traditional credit cards, retail credit cards area usually very easy to get, have low credit limits and very high interest rates. Sure, discounts at your favorite store can be tempting, but are you really saving money if you are more tempted to shop or you can’t pay your bill in full?

15. Maxing out your credit cards damages your credit score. Even if you don’t exceed your credit limit, running up your bill to the maximum allowed will have a huge negative impact on your credit score. Some experts recommend keeping your balance under 30 percent utilization, but the safest thing to do is just pay your bill in full each month.

16. You can negotiate with your credit card issuer. It is possible to negotiate the terms, interest rates and payments on credit balances. If you are faced with a large bill you can’t pay, you can sometimes negotiate the total balance of the credit card debt owed. If you end up settling credit card debt, you will be required to pay the new total in full and you should expect your card to be closed and your credit reports to take a hit. Negotiating your credit card debt should only be done in an emergency.

17. There is a difference between good debt and bad debt. Borrowing money at a low rate to purchase a home or car isn’t bad debt; you need a home to live in and you probably need a car to get to work or school. There are personal finance experts that promote the idea of paying cash for everything, including a new home or car, but that option doesn’t work for everyone. Bad debt is expensive debt, including high interest credit card debt or student loans, especially if your post-graduation payments will push you close to the poverty line.

18. Employers can pull your credit reports. The Fair Credit Reporting Act allows employers to pull your credit reports as part of employment screening. Some states restrict the use of credit reports for employment screening but it has not been outlawed altogether. Also, once you have been hired, employers maintain the right to pull your reports at any time during your employment. While credit reports do nothing to determine your ability to perform job duties, they can shed light on personality traits, like responsibility. Of course, credit reports don’t tell the entire story and this might not seem fair, but keeping your credit history as pristine as possible will help you stand out in a sea of applicants.

19. Prepaid or secured credit cards won’t fix your bad credit. A secured credit card is offered by most major credit card issuers and allows the user to make a deposit, or prepayment, equal to the credit limit. These cards are reported to the three major credit bureaus, but they do very little to help you build credit. There is some value, but it takes more than just a secured card to negate any derogatory items on your credit history. These cards are best for people who are establishing credit for the very first time.

20. Having bad credit doesn’t make you a bad person. The good thing about making credit mistakes in your 20s is that you have plenty of time to fix them. This is the time in your life to make mistakes, learn hard lessons and develop good habits that will last a lifetime.
Morgan Quinn writes for (, a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.

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