Embarking on the journey to build credit is an essential step as you transition into adulthood. Credit serves as your passport to numerous important transactions. Whether you’re aspiring to get a loan, buy a car, lease an apartment or make any major financial purchases, your credit becomes your financial reference point. It provides insight to lenders and landlords about your financial reliability. It’s a stark reality that many young adults face when turning 18: setting up a decent credit score can be challenging without a credit history.
One of the most convenient ways to build credit is by utilizing a credit card and consistently paying off your balance. Yet, without any prior credit, you might find it difficult to qualify for most credit cards, leaving many young adults perplexed about their next steps.
Contrary to popular belief, you don’t have to wait until you’re 18 to start building credit. There are sufficient strategies for kick-starting your journey before turning 18. If you’re keen to ensure a strong start to credit history for yourself or your children, consider the following steps:
BECOME AN AUTHORIZED USER
It’s exceedingly difficult to obtain a credit card if you’re under 18. However, there are means to utilize a credit card to amass credit without owning one. One solution could involve becoming an authorized user on a parent’s credit card. It allows you to tap into the primary cardholder’s established and credible credit. But bear in mind, this strategy hinges on a strong level of trust between the primary cardholder and the authorized user, given the interconnectedness of their credit.
OBTAIN EMPLOYMENT
Even though a job won’t directly boost your credit, it lays the groundwork for building it in the future. When you apply for various credit forms, including credit cards, your employment history becomes an essential factor that banks and credit card companies review. If you can balance work and school simultaneously, procuring a job in your early teens can provide a solid track record of employment history, essential when applying for a credit card. It signifies your capability to repay debt.
CONSIDER A SECURED CARD
Despite the appeal of embarking on building credit before 18, it could be daunting. Moreover, you might not fully comprehend the financial obligations of a credit card until you’re older. Nevertheless, at 18, finding a card that you qualify for isn’t as straightforward as it seems. Consider a secured credit card to start building credit from the ground up.
Secured cards use a security deposit to establish your line of credit—for instance, a $1,000 deposit sets your line of credit at $1,000. Like a regular credit card, you will use the secured card the same way, but it’s linked to actual cash, making it easier to qualify for. Reliable use of a secured card could potentially lead to an offer for an unsecured card sooner than later.
APPLY FOR A STUDENT CARD
During college orientation, you would likely find booths prompting you to sign up for a student credit card. These cards tend to be easier to qualify for, with fewer prerequisites and sometimes, enticing rewards for diligent credit card use. If you’re headed to college and preparing to lay down your financial foundation, a student card could be an invaluable resource.
CULTIVATE GOOD HABITS
Regardless of age, the cornerstone of building credit revolves around cultivating and maintaining robust financial habits. Your credit is a life-long commitment and reversing a poor credit score can be challenging. Sustain strong financial habits such as timely bill payments and full balance clearances every month to achieve a stable credit score.
THE ROLE OF AGE
In the journey of building credit, age may play a role to some extent. Despite a few restrictions attached to being under 18, you could still get started on the process, even though officially, you cannot sign up for a credit card until you’re of legal age.
There’s no definite age guideline for when to start building credit. Just like savings, the earlier you start, the better. Even though getting your first credit line might not be straightforward, don’t put off building credit until after college. Begin gathering financial experience and good habits from your early teen years. Consider student or secured cards in your early twenties and continue building from there.
When you, or your children, are prepared to start building credit, the decision rests with you. Remember, as soon as you turn 18, don’t hesitate to start working towards achieving a solid credit score.
