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Building credit at 18: How to start out strong

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As a young adult, reaching the golden age of 18 is an exciting milestone. You're set to experience newfound freedoms and responsibilities—maybe you're applying for a student loan to pay for college or looking for your first apartment.

A strong credit score can help these and other financial goals go a long way. A solid rating shows prospective lenders and landlords that you can manage your money. Learning how to build credit at 18 can put you in a great position as you start to flex your financial independence.

The importance of good credit

The goal of a credit score is simple: to show banks and other parties you're trustworthy when it comes to your financial responsibilities. Credit scoring models like FICO and VantageScore create a rating based on your three credit reports: Experian, Equifax and TransUnion. These credit bureaus collect a variety of information about your borrowing habits, including the type of loans you obtain, how much you owe and whether you've made timely payments.

While FICO and VantageScore use a slightly different algorithm to assess your risk profile, both provide a score ranging from 300 to 850. A higher number indicates greater creditworthiness. Your credit score probably isn't the only factor lenders use when determining whether to extend you a loan as an adult—and if so, at what interest rate. But it's usually one of the most important ones.

In addition to helping you borrow at more favorable rates, a good credit score can help you:

  • Rent an apartment by showing landlords you're responsible
  • Obtain lower insurance premiums, including for your car
  • Get a job, especially if you seek work in finance or law enforcement

How to build credit early

Credit scoring models look at the age of your credit accounts and the number of on-time payments you've made. So, as a younger adult with little-to-no credit history, you may find yourself with a low score that lenders and other parties see as risky. That's why learning how to build credit at 18 or earlier is important to your financial health later in life. Here are three ways you can do it:

Apply for a secured card

If you're looking for a good way to build credit without overextending yourself, a secured credit card might be the way to go. Unlike other cards, these cards only allow you to spend up to the amount you've already deposited into your account. Issuers don't have to worry about you defaulting, which means you typically can still get a card if you have no credit history or proof of income.

Because you're limited by your deposit amount, you're not at risk of getting over your head in credit. And as long as you consistently make on-time payments, a secured card can help increase your credit score over time.

Get a student credit card

Many of the larger card issuers offer a "student" credit card specifically geared toward younger adults. This may be an option if you're 18 and attend school, though the Credit CARD Act of 2009 requires anyone under age 21 to have a parent or guardian co-sign for them.

In many ways, they're just like other cards. But they typically don't require a credit history and have a lower credit limit. Student cards can be a great way to start building credit, although you need to be careful. If you can't pay off your balance every month—which can be difficult if you don't have a job—you could end up with considerable interest charges and late fees.

Obtain a credit-builder loan

A credit-builder loan is another way to develop your credit score. Unlike traditional loans, the bank only releases the funds once you've made a series of payments. Typically, these are smaller loans—limits generally range from $300 to $3,000, depending on the lender—that you repay in six to 24 months.

Lenders report your payment history to the credit bureaus, enabling you to establish credit. And because you're essentially prepaying for the loan, most banks are willing to offer lower interest rates than credit cards.

Can you build credit before 18?

Building a credit history is a bit trickier if you're still a minor, although it's not too early to start developing basic money management skills. One of the first steps you might take is getting a teen-friendly debit card. While its usage doesn't end up on a credit report—and therefore doesn't contribute to your credit score—it can help you get used to tracking your spending. Because you only can make purchases up to the amount you've deposited into the account, you're forced to prioritize expenses and live within your means.

Once you've demonstrated responsible spending habits, consider asking a parent if they could add you as an authorized user on their credit card. Some cards don't have an age requirement for getting added to an adult's card, though others set the bar at 13 or higher. As an authorized user, you can make purchases online or at local retailers, just like your parents. But this way, your spending is under their watchful eye. As an authorized user, the account balance and payment history typically appear on your credit reports (though you should ask the issuer which bureaus it reports to, just in case).

As long as you both make on-time payments and keep a low utilization rate—using around 30% or less of the credit you have access to—it can be a great way to slowly increase your score. Of course, negative marks can have the opposite effect for both you and your parent. So this tack depends on their comfort level adding you to their account as well as your trust that they'll make prompt payments.

Young woman studying
Beautiful student girl learning in a library
Beautiful student girl learning in a library at university

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Tips to borrowing responsibly

Taking out loans or obtaining a credit card can be an essential way to help build your credit score, but it's not without risks. Follow these tips to borrow responsibly:

  • Before taking out a loan, make sure you have enough income to comfortably make the monthly payments.
  • Try to pay off your entire credit card balance each month so you don't have to pay interest charges.
  • Get free credit reports once a year at to make sure your file doesn't have errors.
  • Avoid applying for more than one credit card if you have limited income.

Borrowing wisely is one key element of a healthy relationship with money. As you reach adulthood, you'll want to develop a comprehensive financial strategy that helps you achieve your short-term and long-term goals. A financial advisor can help. They can meet with you to discuss your financial situation and suggest budgeting techniques and other strategies to start your financial journey off on the right foot.