Let's be honest. Credit can be frustrating to deal with, especially if you were never taught how to properly build and manage your credit.
We recently talked to three people who now have good credit, but who really struggled with credit in the past. And they're not alone. Credit is surprisingly difficult for hundreds, even thousands of people, specifically those who fall into the younger generation categories.
According to a recent Experian data report, the average FICO credit score for Americans between the ages of 20 and 29 as of the second quarter of 2019 was 662.
Additionally, the report shows that ages 30 to 39 had an average FICO score of 673 and those ages 40 to 49 presented an average FICO score of 684. As you can see, the scores for ages 20 to 49 all appear to fall between the “fair” and “good” credit score ranges.
The report shows the only group that was able to reach the “very good” credit score range were those in the 60+ category.
|Age Range||Average Credit Score||Credit Standing|
*Data from Experian second quarter 2019 report
While older Americans have had more time to build their credit, younger Americans can still have good or even great credit if they prepare early. Unfortunately, many have missed the credit lessons they should have learned when they were younger.
Additionally, this lack of credit education and experience has forced many Americans to put a large amount of time, effort, and, sometimes, money towards fixing their credit in order to access certain financial opportunities like getting approved for loans or being able to rent an apartment.
We asked the three people we talked to, one who was only 18 when first encountering major credit hurdles, to share their credit-fixing stories along with the advice they would give those who are currently struggling with credit.
Her story — “My credit used to be very poor in my twenties because I didn't know how to manage money. At 18, I was mailed a credit card, even though I had no job. Immediately, I began maxing it out and going hog wild. The credit statement came in, and I could not afford to make any payments.
I had to take action when my credit score became extremely low, and I couldn't even get a car. When I was able to find a job, I started paying the minimum monthly payments. It ate up most of my paycheck.
After eight years, the blemish on my credit score was gone. I was then able to buy a house with my partner. Sometimes, you have to be patient while your credit score heals.”
Her advice — “One piece of advice is to dispute negative history on your credit report. If the credit company has not responded in 30 days, then the negative history will be removed. Also, contact a credit counselor to see if you can consolidate into smaller monthly payments.”
Her story — “After my debt journey, my credit hit rock bottom. I knew I needed to do something when I was unable to get a normal bank account. I was embarrassed and ashamed, especially as I was raised in a family where you didn't spend money you didn't have.
In order to rebuild my credit, I took out a credit card for people with poor credit — ensuring it was paid off in full every month. I read a lot of information online, and I applied all the lessons I learned in debt counseling.”
Her advice — “Unfortunately, it did take a while to rebuild my credit, so one of my top tips is patience. Another top tip is to not fear talking about money. There is too much stigma and people don't like to talk about it, but talking about money and getting advice is not a bad thing.”
Her story — “I knew things needed to change when it was time for me to purchase a car, and I needed my brother to cosign my loan. I felt embarrassed that, as a smart, college-educated professional, I couldn’t hold my finances together enough to shoulder my own car loan.
What was worse, is that it was one missed payment that really caused my credit score to tank. That day, as I left the car dealership, I made the decision that I never wanted to be in a position that required me to depend on someone else’s credit to stay afloat.
In the past few years, I’ve seen my credit score go from the very low 600s to just over 800 by following three main strategies.
First, I made a point to pay off all of my credit card debts. I followed what is known as "The Snowball Method" — starting off with the smallest debt, then working my way up to the biggest one. When I was done with my credit cards, I paid off my car.
As I was paying down my debts, I also made drastic changes to my budget. This included switching car insurance companies, canceling cable and other subscriptions, changing grocery stores, making my lunch every day, and more. Making these cuts freed up more money for me to be able to pay down my debts faster.
Finally, I worked to build my credit by staying on top of my balances. To this day, I never make a purchase that I can’t pay off within the month. And if I’m not able to pay it off quickly, I simply save up and wait to make the purchase.”
Her advice — “Don’t be afraid to trim the fat from your budget. Bad credit can often be the result of bad spending habits, and it’s easy to think that you just can’t live without that daily Starbucks or cable television. That is until you actually live without it.
Instead of going into your budget thinking that you’re sacrificing things that you love, go in with the mindset that you’re gaining financial freedom.
You’ll quickly realize that you’re perfectly capable of brewing a killer cup of coffee at home, or that you can catch up on all of the reading you’ve been putting off — all while saving money and improving your credit.”
A great way to learn what to avoid in terms of credit and what to do with your current credit situation is to review other people’s mistakes and stories.
In reality, that’s how we learn how to do most things in our lives right the first time — by learning from what others have already done.
Unfortunately, not every credit situation will be the same.
If you are still unsure of what you can do with your credit after reading the stories above, here are a few additional tips and strategies you can use to get your credit in good shape this year.
If your credit is far from where you want it to be, you may want to start thinking about your credit repair options. You can choose to try DIY credit repair solutions or hire a professional credit repair service like Lexington Law.
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What’s the difference between DIY and professional credit repair? In short, professional credit repair companies will do everything you can do yourself, but on a bigger scale.
According to Investopedia, credit repair can “involve paying a company to contact the credit bureau and point out anything on your report that is incorrect or untrue, then asking for it to be removed.”
Although you can dispute negative items on your credit reports and communicate with credit bureaus on your own, DIY credit repair is known to take up a lot more of your personal time and energy. Professional credit repair services are designed to free you from that burden by doing the work for you.
Credit repair companies can provide quicker results than DIY solutions, but the process still takes time. It’s also important to note that there are some untrustworthy credit repair companies that promise you results. While credit repair companies may be able to help you identify disputable items and file the disputes, they shouldn’t promise to remove negative items or improve your score by a specific amount. Accurately reported negatives items can stay on your credit report for seven to 10 years.
If you do choose to use a professional credit repair service, make sure to do your research and find a reputable company to work with. Read this article to see which red flags you should keep an eye out for when you’re doing your credit repair company research.
GoBankingRates recently conducted a survey of 1,000 Americans in order to get an idea of their credit knowledge. As a result of the survey, GoBankingRates found that “at least a third of respondents said they didn’t know what level of credit score they would need to get a mortgage, an auto loan, a rewards credit card, and a personal loan.”
When it comes to credit, the more you know, the better. You may learn some important credit concepts from your family, friends, and even education systems, but you likely won’t be able to keep up with credit if you don’t take time to really build up your own credit knowledge base.
You can stay up-to-date on the latest credit trends by actively looking them up online or through finance-related subscriptions. Additionally, you may want to consider doing a one-on-one meeting with a credit professional or taking an online credit-focused course. You could also try reading credit-focused books or articles.
In general, there are plenty of ways you can learn more about what affects your credit score and what you can do to build and maintain a good credit standing.
According to the same GoBankingRates survey mentioned above, over 35 percent of the survey respondents claimed to not know their credit score.
It’s significantly more difficult to maintain a good credit score if you aren’t aware of your credit score or what your credit reports look like. In a way, it’s like driving your car down a curvy road while blindfolded — next to impossible to accomplish without looking ahead.
It’s easier than ever to know what’s going on with your credit reports and credit scores.
You can request a free copy of your credit report every 12 months from each of the three major credit bureaus — Experian, TransUnion, and Equifax — at annualcreditreport.com or by calling 1-877-322-8228.
You could also sign up for a free or subscription-based credit monitoring service that will let you review your credit reports and send you notifications when there’s a suspicious change in your credit report. Many services also come with credit score tracking.
Your payment history makes up the largest portion of your credit scores, so it’s incredibly important to pay your bills on time and in full.
If this is something you struggle with, you may want to consider setting up auto-pay functions for recurring expenses like subscriptions, credit card bills, and loans.
Although auto-pay won’t solve all of your credit problems, it can help if you often struggle to remember payment due dates. It’s important to keep in mind, however, that auto-pay features will only benefit you if you have the money to fully pay your bills.
Clearly, planning is important. If you can take the time to create an actionable credit strategy, you’ll be more likely to reach your credit goals by the end of the year. Building good credit and fixing bad credit takes time, so having a credit plan on your agenda can help you stay on track.
Nathan Grant, a Credit Industry Analyst at Credit Card Insider, added that payments should be a major focus when you build your credit plan.
“At the end of the day, one of the best ways to improve your credit is to simply pay down your debts responsibly over time. Make all of your payments on time and, if possible, in full,” he said. “Your payment history and the ratio of debt used relative to your overall credit limits are two of the most prominent factors in many credit scoring models.”
Before you build your plan for the rest of the year, take a good look at your current credit situation. As mentioned previously, not all credit situations are the same, so one credit plan that works for your friend might not work for you. Make sure to take the time to do your research, map out your credit goals, and build your plan to fit your specific credit needs.
And, when in doubt, remember to learn from others. You might be surprised by what you find.
May 7th, 2021
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