Financial Coach: 5 Credit Moves To Make in Your 20s That Pay Off for Years
The average 20-something has a credit score in the high 670s, as per Experian data. As far as the FICO scoring model goes, this is considered “good” credit.
While having good credit never hurts, it’s not always a priority when just starting out in the world. But ignoring credit, or not using it wisely, can be a mistake.
If you’re wondering what to do with credit, you’re in luck. We spoke with Amy Wohlsein, a financial coach and founder of Financial Coaching with Amy, to find out the five best credit moves to make in your 20s. Here’s what she suggested.
Read More: I’m a Credit Expert: Watch Out for This Pitfall When Working To Improve Your Credit Score
Try This: 5 Signs You’re Losing Money Every Month — and How To Find the Leaks
Be Conscious About Credit Utilization
Your credit usage makes up a good chunk of your credit score — up to 30%, in fact. Incidentally, that’s also the maximum credit utilization to shoot for if you want to build credit.
“In your 20s, the goal isn’t just to build credit. [It] is to avoid becoming dependent on it,” said Wohlsein. “[Use] less than 30% of your available credit, ideally under 10%.”
Wohlsein also said making mid-cycle payments can help keep your utilization below the target.
Why this matters: Good credit can help you qualify for low-interest financing, which could save you thousands of dollars. It can even help you get better insurance premiums for small — but still significant — savings over time.
Reconsider the Idea of 'Good' Debt
There are “good” debts, and there are “bad” debts. Good debts may help boost your future earnings or net worth and have low interest rates. Bad debts are expensive and don’t bring much (or any) long-term value to your life.
A “good” debt can also become a bad debt if it becomes unmanageable.
“I encourage people to question the idea of ‘good debt,’” said Wohlsein. “Even student loans can delay wealth-building if they’re not paid down intentionally.”
Why this matters: Even “good” debt can slow down bigger financial goals like buying a house or retirement.
Keep Financial Literacy Month going — learn how the MoneyLion app helps you track, manage and move your money in one place.
Shop Around for Financing
Loan and credit card rates and terms (and fees) can vary widely — and not just because of your credit score. In your 20s, one of the best credit moves to make is shopping around for better financing.
“You do not have [to] accept the offer from the car dealer or the mortgage company your realtor recommends,” said Wohlsein. “Shopping [for] your financing and looking for the best interest rate and terms can save you thousands over time, even if it’s a small difference in interest rate or reduced fees.”
Why this matters: You could save thousands (or hundreds of thousands) in interest, just based on the financing options you choose in your life. That money could be used for investing or other financial goals.
Avoid Short-term Financing
Instant credit — like “buy now, pay later” (BNPL) plans — can be tempting, especially for smaller purchases. But they can be expensive, too.
With a BNPL plan, you might pay 25% of the purchase fee upfront. The rest, you’ll pay in three equal installments over time.
On-time payments are usually interest-free. However, overdraft charges are prevalent. One study found that BNPL users also face higher late charges (by 2.3%) and higher interest rates (by 1.1%) than traditional credit cards.
Wohlsein advised against using these plans and, instead, waiting until you can pay in cash.
Why this matters: Even seemingly small financed purchases can overwhelm your budget. This can create a cycle of credit dependency and a surplus of interest or other charges.
Steer Clear of Lifestyle Inflation
Chances are you’ll start earning more money in your 20s and beyond. But just because you’re making more doesn’t mean you should be spending more. Quite the opposite holds true.
“The biggest mistake I see is lifestyle inflation through credit, like financing cars or constantly upgrading devices,” said Wohlsein. “Your 20s should be about building financial discipline, not financing your lifestyle.”
Why this matters: Lifestyle inflation often leads to higher credit usage. This means carrying more debt later into life, which can also make it harder to save or invest in your future.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion:
