How Gen Z and Millennials can improve their credit scores

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Most young people realize that credit is a foundational pillar of financial well-being. According to research released by Experian in 2023, 79% of millennials and Gen Zers are actively trying to increase their credit score while young rather than putting it off for later. At the same time, most of these consumers (52%) don't know how to start building credit.

Establishing a strong credit history isn't always easy, but the basics are straightforward. CNBC Select breaks down the steps young consumers can take to begin their credit-building journey and recommends products that can help along the way.

A credit card is arguably one of the most convenient and effective tools for building credit. It offers more benefits and protections than a debit card, and you can use it for most routine expenses. With each swipe of the card, you'll create a record of activities that allows the major credit bureaus to generate a report on your creditworthiness for banks and lenders.

While many of the best credit cards require good credit (or a FICO® score of 670 or higher), you have plenty of options even if your credit is far from ideal or you're new to it. For instance, secured credit cards provide a low-risk way for borrowers to use a card to raise their credit scores. Some even earn rewards, which typically you only find with regular unsecured cards.

For example, the Discover it® Secured Credit Card offers 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically. Plus earn unlimited 1% cash back on all other purchases.

Whichever credit card you pick, make sure to follow these simple guidelines to make sure the card will help your credit:

• Always pay your bills on time. Payment history is the most influential credit score factor. To avoid late payments, you can set up autopay, which you can usually do in your credit card app.
• Stay away from your credit limit. Credit utilization (or how much of your available credit you're using) is the second most important credit factor. You want to keep your credit utilization rate under 30% to ensure you don't hurt your credit. For instance, if your card's credit limit is $1,000, you shouldn't carry a balance of more than $300.
• Request a credit limit increase. After you've used your card responsibly for several months, you can contact your card issuer and ask to increase your credit limit. This will allow you to keep your credit utilization low more easily — and give you more borrowing power.

Using credit products, such as credit cards and loans, isn't the only way you can build your credit. You can sign up for certain services that will make sure bill payments usually ignored by the credit bureaus will count towards your score. Namely, Experian Boost® allows you to add on-time utility, cell phone, streaming service and eligible rent bill payments to your Experian credit report free of charge.

Note that Experian Boost only affects your FICO® Score with Experian. Your potential lenders may use a different scoring model and pull credit from Equifax or TransUnion. Still, it's an excellent opportunity to improve your credit standing with one of the three major credit bureaus.

Besides that, you can also look into paid services for reporting rent payments to credit bureaus. Some options include Rental Kharma, Rent Reporters and LevelCredit.

We've already talked about practicing good credit card habits — but if you have or are planning to take on other types of debt, it's essential to treat them with the same care consistently.

From student loans to car loans to personal loans and mortgages, each credit line you take on shapes your credit profile. Paying on time is crucial, so make a point to budget for each of your debt obligations. If a late payment shows up on your credit reports, it will stay there for seven years, negatively affecting your scores. If you ever think you're at risk of being late on your loan payments, get in touch with your lenders to discuss your options as soon as you can.

Only apply for new credit when you need it and it fits into your budget. For example, you might be approved for an expensive car or mortgage loan, but it doesn't mean it's a good idea to get one. Always make sure you can comfortably afford to pay off a loan before taking one on.

Further, as your credit improves, you'll have access to better credit cards with more perks and rewards. Make sure the cards you have complement each other and match your spending habits. Managing multiple credit card bills and annual fees can challenge even the most conscientious borrower so make sure you're prepared to keep on top of it all.

It can take time to build your credit, and a credit monitoring service can help you avoid any surprises or errors from slowing you down on your journey to a good score.

CNBC Select picked CreditWise® from Capital One as the best free credit monitoring service. It provides a range of useful features, such as the credit score simulator and dark web monitoring, and offers access to your VantageScore from TransUnion. The service also tracks changes on your TransUnion or Experian reports. CreditWise is open to anyone — not just Capital One customers.

Another excellent choice is Experian free credit monitoring. You'll get monthly updates on your FICO score and Experian credit report in addition to access to features like online disputes and real-time alerts about new accounts or inquiries.

Speaking of disputes, make sure all the information you're seeing on your credit is correct. If something doesn't look right — for example, you're seeing accounts you haven't opened or addresses that don't belong to you — file a dispute. Stay vigilant because errors on your credit reports might be a sign of identity theft.

Building credit is simple, but that doesn't mean it's easy. If you're focused on improving your credit, use credit cards and loans to your advantage by always paying on time and being a responsible borrower. Achieving a high credit score may take time and patience, but in return, you'll be able to get better rates and terms on new financial products, saving money in the long run.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of personal finance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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For rates and fees of the Discover it® Secured Credit Card, click here.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.