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Whether you’re aware of it or not, credit touches every aspect of your life. Getting approved to rent an apartment, buy a car, take out a loan, or purchase a home (the largest money-related decision most people will ever make) are all fundamentally impacted by your credit score.

Basically, credit stands between you and the many things you may want — now or in the future — and when it comes to building it, the smallest actions can have a dramatic impact. 

That’s why understanding how credit works and how to build a good score are such valuable skills. Despite this, many people are not properly educated on the basics of credit and finances. Only 24% of Millennials demonstrate basic financial literacy, and in a recent survey of more than 100,000 Gen Zers entering college, only 33% said they felt prepared to manage money.

There’s no better time than now to learn how credit works — and how you can get ahead of the game.

Wait, what’s credit?

“Credit,” when broken down, is really just the ability to borrow money. People use it all the time to purchase goods or services with the understanding that they will have to pay the money they borrowed back by a certain date. As you can imagine, this exchange can be a slippery slope and lead to massive debt if the borrower isn’t careful. This borrowing is commonly done through a personal loan, credit card, or even a loan from retirement accounts, like a 401(k).

When most people think of credit, they think of loans or credit cards. But this isn’t the whole picture. Many utility services — like those in control of your water, electricity, and heat — are forms of credit too. For example, people who rent or own a home usually use electricity first, and are then billed for it later in the month. This also means paying for those services can impact your credit score.

What do you mean by “credit score”?

A credit score is a number that ranges between 300 and 850. It takes time — years, actually — to build and is determined by your credit history, or a long record of your payments and purchases, among a few other factors. 

It’s safe to assume your credit file is created the moment you first apply for any credit-related account, such as a credit card or a loan. From that moment forward, your score will either increase or decrease. The higher your score, the better. High scores are proof that you are trustworthy and make payments on time, which is why people who have them are often approved for big purchases (a home, a car, a loan) more easily than people with lower scores.

While credit scores may be a little bit complicated, building credit doesn’t have to be. Keeping your credit under control should always be a priority.

Here’s how. 

Four methods anyone can use to build credit. 

1) Ask a family member to give you access to their card.

This may seem like a tough ask, but you’re not actually asking your mom or dad to let you use their credit card, you’re just asking if you can be authorized to use it. There is a big difference. One of the main reasons building credit while you’re young is so difficult is because it takes so much time to increase your score.

It isn’t commonly known, but authorized users of credit cards build credit as well. That’s why finding someone in your family who is willing to add you as a user on their account can help you get your credit score jump-started, even if you’re not the one making purchases. When you are added as a user, your name is added to a credit report. Whenever an on-time payment is made with that credit card, your account gets built up with good credit and your score increases.

Generally speaking, you must be 18 years of age to get your own credit card. But, often, there is no minimum age requirement to be an authorized user on a family member’s card. Without a doubt, this is a significant advantage for teenagers — both in terms of learning how to handle credit responsibly and kicking off their credit score.

The one caveat here is pretty straightforward: Make sure the person you’re asking to add you to their card actually has a good credit score and makes payments on time. If their credit score declines due to activity associated with the card, your credit score will likely decline along with it.

2) Leverage a credit-builder loan.

Most people believe that the only way to build credit when you are getting started is to begin borrowing money and paying it back. This couldn’t be further from the truth. 

Credit-builder loans essentially work the opposite way of a traditional loan. Rather than being handed a sum of money and paying it back over time, the money you request is put into a savings account that you get access to after making all the payments. These loans are offered by select banks, credit unions, and online lending platforms. It’s important to shop around before applying to ensure you get the lowest interest rate and costs available.

The lender offering the loan will report your payments to one of the credit bureaus, which will help you establish a good credit score with less overall risk. Combining a credit-builder loan with other responsible payments — through a credit card, utilities, rent, etc. — can have you well on your way to building a higher credit score.

3)  Get utility bills in your name and pay them on time.

If you have the option, ensure that utility bills are in your name when they are paid, as this can positively impact your credit score. However, payments that are 30 days late will have negative repercussions, so it’s important to be vigilant of due dates.

While utility payments are not always reported to one of the credit bureaus, there are some lenders who do report payments, whether they are on time or not. These alternative credit-scoring methods are meant to help those with little credit history begin to build credit via other means. Some other common bills that may contribute to your credit score are phone service, Internet, and even cable.

4) Open a new credit card.

Approach this method with caution. Having your own credit card is an exciting, but equally daunting prospect. There were 347 million credit card accounts opened in 2019 alone. 

Credit cards are much easier to get when compared to loans. If you have a limited credit history, there’s a decent chance you’ll still be approved — just with a lower credit limit, or the amount of money you’re approved to spend using that card. It is common for a first credit limit to range anywhere from $100 to $1,800.

Some people, especially those who are new to handling credit responsibility, can find it difficult to withhold from racking up debt. An excellent strategy for ensuring you don’t get carried away is watching your credit utilization, or your credit-to-debt ratio, which can be calculated by dividing how much you’ve spent by how much you’ve been given. As a general rule of thumb, it is best to keep this number below 30%.

If your credit score is currently suffering because you’re not in a financial position to pay off your debt and lower your credit utilization in the near future, an alternative option could be opening a new credit card. This would give you more credit, and assuming you don’t put any more money on the new card, your overall utilization would drop.

Opening a new card might also help you save on fees and interest. Many credit cards charge an annual fee in addition to an Annual Percentage Rate (APR), which is the interest rate you’ll have to pay on any outstanding debt after each billing cycle. Oftentimes, you can open a new card with a different issuer and bargain for a lower APR, then transfer your balance from one card to another so that you’re not racking up interest. Some issuers will promote 0% APR on balance transfers for around 13 months.

Of course, the risk with opening a new card is that you could use the increased credit limit to create even more debt. You need to be careful not to bite off more than you can chew. 

Building a reliable credit score ultimately revolves around discipline — and the choices you make. Practicing discipline always, and taking the right steps now, will get you well on your way to building a score you can be proud of. But with this score, there’s more than just pride on the line. Always remember that credit can positively, or negatively, impact your major life goals. Your future is at stake, which is why it’s so important to take the right steps now.