Establishing credit early allows for a successful financial future later in life. However, most of the 20-year-olds are independent and have not accumulated enough credit history to make any meaningful reports. Is it good to have credit score of 750 if one is 20 years old?
What Affects Your Credit Score?
The credit score is a numerical representation of credit rating that ranges between 300 and 850 to show the ability of an individual to pay his/her debts. The FICO score is the most popular credit score model that is currently in use. It is better to obtain the highest score possible. The total points that one can obtain from the test is 800; anyone who obtains above 750 is regarded as excellent.
Your credit score is calculated based on the credit reports that you have with the three major credit bureaus, namely Experian, Equifax, and TransUnion. These reports show how well you have handled paying your bills and other debts. They do so on a monthly basis to the bureaus to provide them with information on your activity.
The factors that have the biggest influence over your score are:
Credit history How timely one is in paying the bills. This accounts for thirty-five percent of your total score. Credit utilization The proportion of total credit line that you employ. It is advisable to keep your credit utilization ratio below 30 percent of your total credit limits. This is 30 percent of your score. Credit age The average age of credit accounts. Older is better. This makes up 15 percent. Credit mix When one has credit card debt, auto loan, mortgage among others. This is equal to 10 percent of your score. New credit This is the ability not to apply for credit when one does not need it, that is, one should not open many accounts at once. This constitutes 10 per cent.
Why Credit Scores Matter
It helps to qualify for lower interest rates in credit cards and other loans because one has a good credit standing at an early age. This helps you save a lot of money during your lifetime. Credit is used by landlords and insurers to judge you as well.
In adulthood, one’s credit score determines major financial milestones such as securing a loan and purchasing a house. It is important to note that by creating credit early, one opens the doors to possibility in the future, especially in the twenties.
For instance, a 750 score may be useful in getting a $300,000, 30-year mortgage at $107 per month less than a 620 score. That is more than $40,000 on one typical loan throughout the life of the mortgage only.
These are the difficulties that 20-year-olds have with credit.
It is hard to build credit score as a positive one, thus, it might take up to 20 years to score 750. Reasons include:
Short credit history – this means that you must be active on a credit account for at least six months to have data that can be used to prepare a credit score. Some 20-year-olds might not have enough accounts or account length yet. Student loans, for instance, are considered but they do not affect your score as positively as a healthy credit card or auto loans will. Student loan credit are a good part of the initial credit history in case of the 20-year-old persons in general. High credit utilization – credit limit for young adults is normally low. Charging up to the limit or having a balance of more than 30 percent of the limit is enough to pull the score down. Late payments – A single payment left unpaid can reduce your score by over 100 points if you have a short credit history. It requires extra commitment to ensure that you never miss any due dates. Being approved for too much credit – Every time you apply for fresh credit, your score drops a few points. Impulse applies where you are not prepared can reduce the extent that one can be able to achieve a certain score.
Typical Ranges for 20-Year-Olds
Although it is possible, the number of people who have credit scores above 750 at the age of 20 is rather limited. According to VantageScore report on credit trends by age group:According to VantageScore report on credit trends by age group:
Thirty-eight percent of the 20-year-olds had no credit score at all because of inactivity. This rises sharply to over 50% when it reaches below 20. Currently, the average score of the 20-year-olds is hovering in the 600s, 675, to be precise. The proportion of 20-year-olds who score excellent 750 and above remains low at 13 percent for the entire nation. This steadily improves each year of age.
Thus, the score as high as 750 is quite good, although not very typical, for instance, for the person who is 20 years old. A score in the good range should still pass the approval requirements for the first credit cards and the loans with fair interest rates. In the long run, the positive history formed at an early stage results in crossing the figure of 750 and even more.
This paper will seek to answer the following question: How can one get to 750 by 20?
If you want to build your score quickly in your early 20s, here are some tips:If you want to build your score quickly in your early 20s, here are some tips:
Receive a student credit card – A less restrictive initial card for students could help initiate positive reporting. Shop often but for small items, then settle the bill in full at the end of the month.
Get added to a parent’s oldest primary account – This is a good way to improve your history using your parent’s positive record on an older account.
Avoid frequent hard inquires – Do not apply for credit just to check your available credit. When you are just starting out, making too many inquiries can harm your credit score for a short period.
Always pay by the due dates – It can be done by setting auto-debit or using a calendar to remind of the dates. Out of all the factors that determine the credit score, record of payments is the most influential. Do not be late in payments especially if you have a short credit history.
Look into your reports – You can get three credit reports for free annually, and challenge anything inaccurate with the bureaus. They can have a negative impact on the results, distorting your score.
Mind your steps – It is possible to develop great credit from scratch with a few accounts and it will take a couple years of careful consumption. But starting early helps you achieve great scores in the 20s.
The Bottom Line
A credit score in the range of 750 – 850 is considered as very good in terms of approval probability and interest rates. However, getting to 750 with less than a few years of credit history by the age of 20 means building good credit habits over the years.
As most of the histories are very short, and the utilization is comparatively higher, most of the 20-year-olds fall in the fair to good range. Concentrate on building a favorable record – always paying your bills on time and taking out credit only when necessary in the initial years. Healthy money habits formed in your youth can easily help you boost your scores in the excellent 720+ range in your 20s. Yes, it is quite good to have a 750 credit score when one is only 20 years old.
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