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The world of credit and finances can be daunting when you’re in your 20s and just setting out on your own. Many of us tend to avoid those areas of our lives that are a bit scary, but keep in mind that your credit and finances are two of the most dangerous areas to ignore. So let’s agree to face these fears, and avoid making the mistakes that could haunt you for many years to come.

In my experience, I see mainly two kinds of 20-somethings, those who steer away from having any kind of credit and thus have yet to build a credit score and history; and those who take any and every credit offer available to them, rack up huge debts and will wake up sometime in their 30s deep in financial trouble and even deeper in regret.

What’s wrong with both of these scenarios? Perhaps the worst mistake of all: a lack of planning for the future. Whether you’re ready for it or not, your future will come and when it does (usually quicker than expected), you will likely want to buy a home, maybe a new car, perhaps even help your future kids through school and maybe even leave a financial legacy that will outlast your time here. If you want any or all of these things you need to have a plan now.

Establish a Good Credit History

If you don’t have credit or a credit score, you can start small by getting a store credit card or a secured credit card. Pay one of your regular monthly bills – like your cellphone bill – with it. Pay off or pay down the balance each month making sure to keep the balance below 20% of the total available credit line. This is a good way to optimize the “Amount of Debt” factor of your credit score, which accounts for about 30% of your score. Make all your payments on time, because your payment history makes up 35% of your credit score. Over time, this will lead to a good, strong credit history.

If you have a lot of credit card debt and are having trouble making your payments, try to focus on paying down all of your balances to 20% or less of your available credit. It may help to focus on paying down one account at a time while maintaining on-time, minimum payments on all the others. If you have trouble with spending too much, stop carrying your credit cards while you pay down balances.

Maintain Healthy Credit and Finances

Once you have begun to establish a healthy credit history, you just need to continue doing the right things. To keep improving your credit score and building a credit history worthy of a home mortgage you will need an established, long-running reputation of conservative borrowing and on-time payments.

So how do you know if your efforts are leading to good credit? You can find out by pulling your credit reports regularly and make sure they’re accurate – you can get them for free every year from the major credit reporting agencies. You can also track your credit scores to follow your progress. Credit.com offers two of your credit scores for free, along with an overview of how your credit file is affecting your scores, and a plan to help you work your way toward better credit.

Yes, your 20s is the best time to get in the habit of managing your credit, finances and life responsibly. Good luck! And if you have any questions, please let me know. I’m here to help you every step of the way.

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