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Quick Answer: You need to be 18 to open your own credit card, but that doesn’t mean you have to wait until then to start building your credit.Â
It’s never too early to start building credit. In fact, if you start building credit before you turn 18, you hit adulthood a step ahead of most people. With a positive credit history, you’re more likely to be approved for loans, credit cards or a lease on an apartment.
While you shouldn’t stress overly about credit as a teenager, why not take some easy steps to build your credit the smart way early?Â
Already over 18? Here’s how you can start building credit. Under 18? Continue reading to learn how your credit works and where to start building it.Â
Before you can build credit, you need to understand it. There are five major factors that go into your credit score. They work together to determine whether your credit is considered excellent, good, fair or downright bad. Each of these factors is weighted differently, with some having a bigger impact on your score than others.
The five factors that impact your credit are:
Of the five factors above, payment history and credit utilization have the biggest impact on your credit score.
As a teenager, you likely can’t seriously impact any of these factors on your own. You’d need a parent or guardian’s help. However, it’s important to be aware of your credit, even as a young person. Some people use the identity of children and teenagers to get fraudulent credit. This is because they think you won’t be using your own identity for this purpose for a while, so the identity theft may go unnoticed. Understanding how to check your credit report and keeping up with this information regularly helps you protect yourself against such crimes.
Credit matters because many financial decisions and other opportunities come down to whether you have a positive credit history or a good credit score. Some things that can depend on credit, especially as you move into adulthood, include:
Here are some actions you can take now or as soon as you turn 18 to build credit.
Facts: Getting a job doesn’t directly help you establish credit. Also facts: Income is a key factor in qualifying for credit. Your job history, just like your credit history, usually gets stronger with time. The more experience you have, the better your chances of getting a better, higher-paying job in the future, so get started early—without hurting your academics, of course.
The CARD Act of 2009 requires students and other young adults to demonstrate their ability to repay debt before they can open a credit card account. Having a job will help you do exactly that when you’re old enough.
Once you have a job, open some accounts so you can put your money to work. See if you can qualify for a high-yield savings account so your money can make a little more money. Make sure you manage your bank accounts well and avoid overdrawing your funds. If you’re a responsible account holder with a bank for a while, the bank might be willing to approve you for your first loan or credit card when you’re 18.
Build credit early by getting an adult to add you as an authorized user on one of their credit cards. As an authorized user, you could use the adult’s credit account. However, you don’t have to in order to receive credit-building benefits.
If the adult in question is responsible and pays their bills on time, you can get the benefit of that positive payment history. That’s because many credit card companies report account details on the credit profile of authorized users as well as primary account holders.
This is only a good idea if you and the cardholder both trust each other to use or pay on the card responsibly. You’ll also want to make sure the card in question reports authorized users to the three major credit bureaus.Â
If you’re already 18, another option for establishing credit history from scratch is getting a secured credit card. Secured credit cards require a security deposit that dictates your line of credit. For instance, a security deposit of $300 would get you a $300 credit limit. Even though your card is tied to hard cash, you still use it for purchases and make monthly payments just as you would with a normal credit card.
It’s much easier to qualify for a secured credit card, and responsible use helps you build credit. Card providers may even raise your credit limit or offer you an unsecured credit card after a period of responsible use.Â
Another option for those who’ve already turned 18 is a credit builder loan. These are loans that are secured by a deposit you make. You pay the loan as agreed. Once you’re done, you get your deposit back. You also get a shiny new line on your credit report with a hopefully pristine payment history.Â
As you grow into credit, avoid common mistakes people new to credit make. Some include:
In general, you need 3 to 6 months of at least one credit account being reported to the credit bureaus to establish credit. The credit score algorithms require this much information before you’re given a score.
You can monitor your credit by getting access to your credit reports, and order them for free through AnnualCreditReport.com. You can also sign up for services like ExtraCredit to see a lot of information about your credit scores and get some recommendations for how you can work to improve your credit.
Parents, we’ve got resources for you too. If you’re interested in helping your kids build credit and establish healthy financial habits, check out our guide to young adult credit as well as our article on getting a credit card for your teen.
Article updated. Originally published February 28th, 2017.
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