Building a Good Credit Score for Young Adults

Building a strong credit score early can open doors to better financial opportunities, from securing lower insurance rates to renting an apartment with ease and even qualifying for major loans like a mortgage. Here are key strategies young adults can use to establish and maintain good credit.

Understand the Basics of Credit 

Before you do anything else, you should understand the basics of how credit works. 

Your credit report is maintained by the three major credit reporting bureaus: Experian^™, Equifax^® and TransUnion^®. Each bureau may generate separate reports. What's contained in that report determines your credit score. 

**Two of the most popular scoring model providers are FICO and VantageScore. Both have different versions of their scoring models. When you get a credit score from TransUnion, it’s a VantageScore^® 3.0 credit score. Below is a breakdown of the VantageScore 3.0 credit score factors.

• Payment history: 40% - This category includes whether you've made payments on time, which can help your credit, or missed payments, which can hurt it.
• Age and credit mix: 21% - Age and credit mix measures both the average age of your accounts and the different types of accounts you have.
• Utilization: 20% - Your credit utilization is a percentage of how much credit you’re using compared to your total credit limit.
• Balances: 11% - This is a simple measure of the total amount of balances owed on your accounts, both current and delinquent. 
• New credit: 5% - When you apply for a new credit account, it may result in a hard inquiry on your credit report. These inquiries can signal that you’re looking to take on more debt, but they have a relatively minor impact on your credit score.
• Available credit: 3% - What’s the total credit you have available to you? This factor analyzes whether you have more credit at your disposal than you may need.

How to Improve Your Credit Score

Having a good credit score is largely about keeping up with payments, making sure your balances are low, and not taking on more credit than you need. The important thing to remember is that a changing score is based on changing information in your report. As your credit report data changes, your score may as well.

Start with a Secured Credit Card

A secured credit card functions like a regular credit card, but it requires an initial deposit, which serves as the credit limit. This helps build credit while minimizing risk, as the financial institution is covered if payments aren’t made. Making small purchases and paying the balance on time each month helps establish responsible credit habits. 

Become an Authorized User

Young adults can benefit from being added as an authorized user on a parent’s or guardian’s credit card. This allows them to share the credit history of the primary account holder. However, it's important to ensure that the primary account holder makes payments on time, as late payments could negatively impact both credit scores. 

Start building smart money habits with a U1 Teen Account for kids 17 and younger—perfect for managing spending, saving for spring break, and gaining financial independence. 

Open a Low-Limit Credit Card

A credit card with a low spending limit (such as $200) is an effective way to start building credit. The key is to use the card for small purchases—keeping utilization low—and paying the balance in full each month. Within a few months, this can help establish a strong credit history.

Keep your Credit Utilization Ratio Low

Your credit utilization ratio, or the amount you owe compared with your credit limit, makes up a portion of your credit score. 

Experts suggest keeping your credit utilization ratio below 30 percent. Generally, you should try to keep that figure much lower, closer to 10 percent. 

The best thing to do is completely pay off your balance each month. This way you'll avoid paying interest and keep your utilization down. 

Pay Bills on Time

Payment history is the most important factor in a credit score. Even one late or missed payment can significantly lower a score and remain on a credit report for years. Setting up automatic payments or calendar reminders can help ensure bills are always paid on time. U1 can help you stay on track with convenient digital services, including bill pay options that make it easy to never miss a payment.

Understand Credit Terms & Conditions

Different credit cards have varying interest rates, fees, and policies. Before using a card, it's essential to read and understand the terms, including when interest applies and how much it costs. Choosing a card that fits spending habits and financial goals can prevent unnecessary fees and surprises. Finding the right U1 card for you is easy on our quick online or mobile-friendly application.

Monitor Your Credit Report

Federal law allows individuals to access a free credit report annually from each of the three major credit bureaus. Regularly reviewing credit reports helps identify any errors or fraudulent activity that could impact a credit score. If discrepancies arise, they should be reported and corrected immediately.

Pay Student Loans on Time

For those with student loans, on-time payments are crucial for maintaining a strong credit score. Student loans are reported to credit agencies and play a significant role in overall credit health. Setting up automatic payments can help ensure payments are never missed, avoiding late fees and potential credit damage.

Consider Cosigning on a Lease or Loan

Having a parent or guardian cosign an apartment lease or an auto loan can help establish credit history. On-time payments will be reported to credit bureaus, building a track record of responsible financial management. Over time, this can lead to independent approval for future loans and rentals.

Know the Difference Between Credit & Debit Cards

Understanding how credit and debit cards function is essential for smart financial management:

• Debit cards pull money directly from a checking account and do not impact credit scores.
• Credit cards involve borrowing from a lender, can accumulate interest, and require monthly payments. They also help build credit history when used responsibly.

What Is a Good Credit Score for Young Adults?

Credit scores typically range from 300 to 850. A score between 670 and 739 is considered good, while higher scores qualify for lower interest rates and better loan terms. A score below 670 may require a cosigner for major financial commitments like apartment rentals or car loans.

The Long-Term Benefits of Good Credit

A 2025 study by LendingTree* found that consumers with very good credit scores (740-799) could save over $39,000 in interest across a lifetime of loans compared to those with fair credit (580-669). Establishing good credit habits early can lead to significant financial savings and increased financial stability.

Need Help Getting Started?

Navigating the world of credit can feel overwhelming, but U1 is here to help. For personalized guidance on building credit, contact U1 Member Support at (800) 543-5000, option 0, or email memberservices@u1cu.org. Our team is available Monday–Friday from 9 a.m. to 5 p.m. and Saturday from 9 a.m. to 12 p.m. 

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Become a member today and start building your financial future today with smart credit habits that set you up for long-term success!

This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments regarding the matters related to your condition are made.

* Davis Maggie, Shepard & Dan, Article Title: "Raising a ‘Fair’ Credit Score to ‘Very Good’ Could Save Borrowers Over $39,000". Lending Tree: Updated January 24, 2025. URL: https://www.lendingtree.com/personal/study-raising-credit-score-saves-money/#:~:text=According%20to%20the%20latest%20LendingTree,the%20tune%20of%20over%20%2439%2C000. Access Date: 03/12/2025.

** "Guide to Credit Score Factors", TransUnion: Blog 09/17/2023, URL: https://www.transunion.com/blog/credit-advice/guide-to-credit-score-factors?atvy=%7B%22264995%22%3A%22Experience+A%22%7D, Access Date: 03/12/2025.