Why Gen Z Should Start Building Credit Now

Building good credit is a cornerstone of financial health, and there is evidence that young people are beginning to use credit to their advantage early in life. For Gen Z, establishing credit in your late teens or early twenties can set the stage for long-term financial success. In this blog, we dive into why building credit early is important and how to do it responsibly long before you need it to make that big purchase.

What Is Credit?

Credit is the ability to borrow money or access goods and services with the promise to repay later. Your creditworthiness is measured by your credit score, a three-digit number ranging from 300 to 850, and your credit history, which details your borrowing and repayment habits. Lenders, landlords, and even employers may use credit scores to assess how reliable and financially responsible you are. 

Key factors influencing your credit score include: 

• Payment history: Have you paid your bills on time? 

• Credit utilization: How much of your available credit are you using? 

• Length of credit history: How long have you had credit accounts? 

• Credit mix: Do you have a variety of credit types (e.g., loans, credit cards)? 

• New credit inquiries: Have you applied for new credit recently?

Why Is Having Good Credit Important?

Good credit isn’t just about borrowing money. It’s a tool that can open doors  to opportunities and reduces financial stress. Here’s how: 

1. Lower Interest Rates: With a good credit score, you’re more likely to qualify for loans and credit cards with lower interest rates, saving you money over time. 

2. Better Loan and Rental Approval Odds: Lenders and landlords are more likely to approve applications if you have strong credit. 

3. Job Prospects: Some employers review credit reports as part of their hiring process, especially for roles involving financial responsibility. 

4. Financial Independence: Good credit helps you qualify for essentials such as car loans, mortgages, and even utility services without needing a co-signer. 

5. Emergency Preparedness: A healthy credit profile can provide a safety net during unexpected financial hardships.

How to Start Building Credit Early 

Building credit may sound daunting, but there are several straightforward ways to get started: 

1. Open a Credit Card: Perhaps the most obvious of credit-building opportunities is to open your first credit card. If you’d like to minimize risk for you and your lender, you may want to consider a secured credit card that is backed up by money in your savings. Regardless of your card selection, use it responsibly by making small purchases and paying off the balance in full each month.
2. Pay Bills on Time: Regularly paying bills such as auto loans and credit cards can help show a positive payment history.  
3. Monitor Your Credit: Stay on top of your credit score by monitoring it in online banking, and make sure to get at least one free credit report every year from one of the major credit bureaus.

Credit Mistakes to Avoid

While building credit is essential, missteps can set you back. Avoid these common pitfalls: 

1. Missing Payments: Late or missed payments are one of the fastest ways to damage your credit score. Setting up reminders or autopay to ensure bills are paid on time may help you stay on track.  

2. Overspending: It’s tempting to treat credit as free money, but this can lead to high balances and unmanageable debt. Aim to keep your credit use below 30% of your credit limit. 

3. Opening Too Many Accounts at Once: Credit applications result in a hard inquiry on your report, which can lower your score. Try to avoid opening multiple accounts in a short period. 

4. Closing Old Accounts: Length of credit history is an important factor in your score. Even if you’re no longer using an account, keeping it open may benefit your credit profile. It’s important that you continue to monitor all accounts for any unauthorized purchases.  

5. Ignoring Credit Reports: Errors on your credit report can hurt your score. Check your reports annually for mistakes and dispute inaccuracies promptly. 

Starting to build credit in your teens or early twenties can be one of the smartest financial moves Gen Z can make. It’s important to remember that it’s highly unlikely your credit will be perfect: carrying a manageable level of debt is inevitable. But by understanding what credit is, why it matters, and how to establish it responsibly, you’ll lay a solid foundation for a lifetime of financial opportunities.