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Advice | How my millennial daughter built her credit score above 800 in 5 steps

This is an update of a column that originally published Dec. 4, 2019.

While I generally discourage young adults from using credit, at some point they do need to prove they can manage debt.

The widely used FICO credit score, which is derived from information in your credit file, ranges from a low of 300 to a high of 850. Your score — along with other financial factors — directly affects how much interest you pay for the money you borrow. Your score also influences your insurance rates, as well as your ability to get an apartment or even a job.

But how do you show a lender that you can manage debt well if, to get credit, you have to have a positive credit history? That’s what one reader wanted to know.

“My child graduated college, moved home, got a good job, opened a bank account at a small local bank with direct deposit, and then applied for a credit card at a large national bank,” the reader explained during an online discussion. “The bank turned [my child] down, however, saying, ‘the credit reporting agency serving your area has reported no credit history for you.’ What does a new graduate need to do to establish a minimal history sufficient to get a credit card?”

It might surprise you, but it doesn’t take very long to establish a good credit history. So, there’s no need to panic on behalf of your teen or young adult child.

If you plan it right, you can help your young adult child build an excellent credit profile just in time to qualify for a loan or apartment lease without needing a co-signer.

Four years ago, I helped my 24-year-old daughter establish credit with the goal of building a good credit score. Here’s a step-by-step guide on how we started the process.

As our daughter was getting close to graduating from college, my husband and I made her an authorized user on our joint credit card. This tactic is called “piggybacking.”

The authorized user will benefit from the positive credit history of the primary cardholders. In our case, we both had credit scores well above 800.

Treatment of authorized users can vary by card issuer. But generally, adding an authorized user to your credit card account lets the credit history of that particular card be transferred to the authorized user’s credit files. Keep in mind, positive and negative information on the card can be added to the authorized user’s credit reports.

The point wasn’t to allow our daughter to use the card much — and she didn’t. She just piggybacked on how we handled the card, paying it on time, keeping balances super low and paying them off every month.

Exercise caution when adding an authorized user. Although the person has your permission to use the card, there is no contractual responsibility to pay any of the charges on the card. So be extremely careful about using the piggybacking strategy.

We had our daughter apply for a general-purpose credit card.

She was turned down because her income was too low. At the time, she was working as an intern with a small monthly stipend. But we just wanted to test whether our credit history alone was enough to get her approved.

Having been rejected, she then applied for a secured credit card, which is backed by money deposited into a savings account. For example, if the required deposit is $200, that becomes your credit limit.

I had a perfect 850 credit score. Then I paid off my house.

If the young adult already has a banking or credit union account, start the search for a secured card at that institution. Bankrate regularly profiles the top secured-card offers. On its list of best secured cards for November 2023 are several credit cards with no annual fees, and most require a deposit of only $200.

Shop around to avoid cards with high fees, and make sure the issuer is reporting to all three credit bureaus — Experian, Equifax and TransUnion. Don’t worry too much about the interest rate, because the balance should be paid off every month.

Our daughter was approved for a secured card from her credit union with a $250 limit.

The next part is crucial: We told her to make only a few small-dollar purchases each month and to pay the entire balance off before the due date.

The two biggest factors to getting and keeping a good credit score are paying your bills on time, and amounts owed. The lower the amount of debt you are carrying the better.

By the way, carrying balances from month to month and incurring interest does not help your score. The credit score rewards an open and active account in good standing with a zero balance.

Credit score facts vs. myths: 5 things to know

Our daughter stuck to the plan and used the secured card to just buy gas and a subway card.

“I paid off the balance as soon as the charge posted,” she said.

With no credit history of her own other than the boost from being an authorized user when she applied for the secured card, her credit score was 698, which was pretty good.

After just three months, her credit score jumped to 737. Once it hit that mark, we advised her to stop using the secured credit card. She tucked it in a drawer.

A few months later, her score had increased to 743.

Several months after getting the secured card, it was time to apply for a regular credit card, one not backed by money in a savings account. She applied at the same credit union that had given her the secured card.

Stop believing these common credit score myths

She was approved for a credit limit of $2,000.

She repeated the strategy of limiting her use of credit, keeping her utilization rate to about 10 percent of her available balance. And she never charges more than she can pay off by the next due date.

Eventually, her lender raised her credit limit to several thousand dollars. Her most recent FICO credit score was 810. The average U.S. FICO score as of April was 718.

In all, it took about a year for my daughter to establish a good credit history, which led to building a very good credit score. FICO says a good credit score is generally considered to be in the 670 to 739 score range. Anything higher is exceptional.

Mission accomplished. She has established that she can handle debt.

B.O.M. — The best of Michelle Singletary on personal finance

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).

My mortgage payoff story: My husband and I paid off the house in the spring of 2023 thanks to making extra payments and taking advantage of a mortgage recast. Even though it lowered my perfect 850 credit score and my column about it sparked some serious debate with readers, it was one of the best financial decisions I’ve made.

Credit card debt: If you’re in the habit of carrying credit card debt, stop. It’s just a myth that it will boost your credit score. For those looking to get out of credit card debt, see if a balance transfer is right for you.

Money moves for life: For a more sweeping overview of my timeless money advice, see Michelle Singletary’s Money Milestones. The interactive package offers guidance for every life stage, whether you’re just starting out in your career or planning for retirement.

Test yourself: Do you know where you stand financially? Take our quiz and read more personal finance advice.

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