Start Building Credit Before You Turn 18

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. 

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? 

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. 

In This Piece

• Factors That Affect Credit
• Why Credit Matters
• How to Build Credit as a Teen
• Common Mistakes
• How Long Does It Take to Establish Credit?
• How to Monitor Your Credit
• For Parents

Factors That Affect Credit

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:

• Timely payments. This means you pay your debt bills on time and as agreed. For example, if someone has a car loan and their payment of $200 a month is due on the 9th of every month, they should make that payment by that date each month to ensure a positive payment history. 
• Credit utilization ratio. This is how much of your available credit you’re using. For example, if you have a credit card with a credit limit of $300 and you have a balance on it of $150, you have a credit utilization ratio of 50%. That’s not good. Keeping your credit utilization ratio under 30% is better for your credit score.
• Credit age. This is how old your oldest open account is as well as the average age of all your open accounts. Opening a credit account as soon as you can and keeping it open helps you build a higher credit age through the years.
• Credit mix. This refers to having a variety of credit account types on your credit report. At minimum, it’s good to have at least one revolving credit account like a credit card and one installment account like a student loan or car loan.
• Number of recent inquiries. When you apply for credit, lenders check your credit score and report. This results in a hard inquiry, which can drop your score by a little. Rack up too many hard inquiries in a short amount of time and you could damage your credit score enough to matter.

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.

Why Credit Matters

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:

• Whether you can rent the apartment you want
• Getting a job, as some employers include credit checks in background screens
• Whether you can obtain auto insurance and how expensive it might be, as some insurance companies use credit scores in their risk profiles
• Whether you can get approved for a credit card or loan you might need
  
• How expensive your debt is, as bad credit can lead to high interest rates that substantially increase the cost of loans over time

How to Build Credit as a Teen

Here are some actions you can take now or as soon as you turn 18 to build credit.

Get a Job

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.

Open a Checking and Savings Account

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.

Get Added as an Authorized User

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. 

Open a Secured Credit Card

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. 

Get a Credit Builder Loan

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. 

Common Mistakes

As you grow into credit, avoid common mistakes people new to credit make. Some include:

• Running up high balances on credit cards, leading to a situation where you can’t get out of debt or even afford your monthly payments
• Making late payments, which can tank your credit score almost overnight
• Applying for too many lines of credit, especially in a short period of time—start small and build slowly instead 

How Long Does It Take to Establish Credit?

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.

How to Monitor Your Credit

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.

For Parents

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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