How to Build Credit with Credit Cards

Let's talk about building credit when you're young or in your 20s, how credit cards work, how credit scores are factored and more!

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Using a credit card is similar to someone loaning you money, you basically are "borrowing" money to pay for the charges that you're going to put on your card, and eventually you'll have to pay that money back.

Credit scores range from 300-850, and generally anything above 670+ is considered good. To get to a score above 700 and even up to 800 - you need to be perfect in 5 areas.

These 5 areas are called Credit Score factors, and again, you can't mess any of these up if you want the highest score.

The factors are the following:

35% of its weighting is payment history - how often do you pay your payments on time. To get the highest score possible, you'll need to pay off your credit card bill on time, and never miss a payment. It's imperative that you do NOT miss a payment because even 1 missed payment can lead to a bad score. Now, you don't have to pay it off in full every month, but you MUST make the minimum payment. Just turn on auto-pay - it'll save you a bunch of time and headache when it comes to your credit score.

30% is amounts owed - this is basically credit utilization. Lets say you have available credit of 10,000 dollars - if you're using more than 20-30% of this available credit, it may impact your score negatively.

Other factors include Length of Credit History (15%) - this just takes time - that's why it's good to start as young as possible. This is calculated as the average length of your credit history, not your total length. So it's best to start building your credit as soon as possible and leaving accounts that are in good standing as long as you can.

Credit mix (10%), and New Credit (10%). With credit mix, just having a good mix of debt is a positive indication, that means you're more reliable because you are able to pay many different things off at a time. Now don't go add credit mix if you don't need to. And then with new credit - they're just checking to ensure you aren't opening a bunch of new accounts quickly - because this looks risky in their eyes.

So how do we improve our score quickly?

Well it takes a long time to build credit no matter what - and you have to play by the rules - so paying off on time, not owing too much, and just consistently paying it off will be good for your score.

There is one hack I want to mention that can improve it fast:

Get added as an authorized user on another person's credit card (your parents) and you can piggy back off their credit history, so long as their credit is good.
If you have no credit, one of the best is the Discover It Secured - for a non-secured card for beginners, I like the Visa Petal, Citi Doublecash or Bank of America Cash Rewards card.

If you guys want me to make a video specifically on Beginner Credit Cards or my opinion of the best cards, let me know in the comments below, this may be something I dive into in another video.

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🙋🏻♂️ Who am I? My name is Humphrey Yang, I am an entrepreneur who has built businesses and am passionate about Personal Finance. This channel is dedicated to helping people (whether you're 21 or 81) become better with their Money, Personal Finances, and Entrepreneurship, I hope these videos help.

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