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5 Smart Credit Habits to Start in Your 20s

The bad news: Good habits typically need to be taught. Most of us aren't born wanting to work on projects before they're due or cover our mouths when we sneeze. More seriously, our desire to have fun and impress others typically results in the innate desire to spend, spend, spend.

The good news: Habits are usually easier to make than they are to break, so if you can establish good financial habits in your 20s, they'll tend to stick and could benefit you in the future.

Let's take a look at five smart habits every young adult should establish:

1. Educate yourself.

Credit isn't the sort of thing you want to experiment with until you get it right -- it's a lot easier to kill your credit health than it is to fix it. You only get one chance to build your credit history from scratch, so before you begin, it's important to get educated on the basics, like what factors go into your credit score and how to read your credit report.

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How: If you're reading this, you've already taken the first steps! Nowadays, it's easy to learn the ins and outs of credit and personal finance. Take advantage of the Internet and regularly read up on how you can improve your financial situation. Don't worry, you don't have to become a credit expert -- just a little education can go a long way in helping you start your credit journey off right.

2. Monitor your credit.

Keeping an eye on your credit reports and scores could help you in two ways. First, it's a great way to learn how your credit may respond to different financial actions. If you're monitoring your score, you can see firsthand how it may be affected each time you do something credit-related, like applying for a new loan or paying down your balances. Second, monitoring your credit can help you catch fraud or errors on your report and deal with the situation quickly.

How: There are many great paid and free services that allow you to monitor your credit reports and scores. Just be sure to research each company before signing up to figure out what you'll get, whether it's legitimate and whether you'll have to pay for the services. You can also get a free copy of your credit report each year from AnnualCreditReport.com.

3. Build an emergency fund.

According to a February Bankrate survey, 21 percent of 18 to 29 year olds have more credit card debt than they have in their emergency fund. This is problematic because emergencies do happen. If you don't have any money saved up and get into an accident or need emergency service done on your car, your inability to pay those bills could wreck havoc on your credit.

How: Each time you get paid, set aside a certain amount or percentage of your paycheck and put it into a fund that's only used in emergencies. Over time, you should be able to build a healthy rainy day fund that could make things easier if a crisis hits. A little self-restraint now could save you a whole lot of stress in the future.

4. Pay your bills on time.

Making timely payments is one of the best ways for consumers to build credit. Since your credit score is meant to measure how likely you are to repay debts in a timely manner, your on-time payment percentage is often one of the most highly-weighted factors used to calculate your score. Just one late payment could hurt your credit health for years.

How: There are a variety of strategies you can try. Many people set up calendar reminders to email or text themselves when their credit card's due date is coming up. If you have multiple credit cards and are having trouble keeping track of all of them, you could also try calling your providers and asking them to move the due date to a different fixed date. Alternatively, consider enrolling in autopay services offered by your bank (if available). If none of these options sound right for you, try coming up with your own mnemonic device, like paying your bills on the first of every month.

5. Limit your spending.

Out of all of the habits mentioned thus far, this may be the hardest to develop. It can seem impossible to resist spending money when you finally have a steady income, but keep in mind that loans and credit cards aren't free money -- if you don't pay them back, your credit score will likely suffer.

How: If you're about to purchase something, question whether you really need it. If you don't absolutely need the item, set it aside and think on it for a few days. This could help prevent impulse purchases that you may not really want. In addition, research the products you do need to buy to make sure you're getting the lowest possible price. With the Internet at your fingertips, you have practically no excuse for paying more than you have to.

The Bottom Line

Remember, a good credit score can cost or save you thousands of dollars, so it's important to make it the best it can be. Developing good credit habits while you're young can do wonders for your financial situation when you're older and ready to make a major money decision like buying a home or retiring. Start now and reap the benefits in the future.



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