At What Age Can You Start Building Credit? 4 Easy Tips

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Summary

It’s not a secret that building credit at 18 is a vital ingredient to enjoying an excellent financial life. With a great credit score, you can easily qualify for loans, secure lower interest rates, and even rent an apartment.

Your credit score is your reputation in the financial world. It shows how trustworthy you are with borrowed money. And establishing good credit habits from a young age paves the way for easier access to credit as you grow older.

That said, one question we always get from parents, teenagers, and even grandparents is: ‘At what age can you start building credit?‘

So, today, we’ll show you what age is best for credit building, how to go about it, plus what you must avoid.

Key Takeaways

Once you’re 18, you can apply for a traditional credit card.
Minors can get secured credit cards with their parent’s permission.
Budgeting, saving, and investing are essential money management skills you must build.
Prioritizing and automating your savings can help you preserve your earnings.
Building good credit habits is the best way to build and improve your credit history and score.
Good credit paves the way for favorable loan terms, lower interest rates, and higher credit limits.
Consider getting help from a reputable credit repair company if you’re struggling with a bad credit score.

At What Age Can You Start Building Credit?

Some card issuers set the minimum age to apply for a traditional credit card at 18 years old. However, applicants who are 18 are legally required to have an independent source of income or a co-signer.

In some cases, lenders may allow minors under 18 to get secured cards with parental permission. And as we’ve discussed above, starting good credit habits early can positively impact your credit history and scores.

However, credit cards aren’t the only way to start building credit at a young age. You can also start by being added as authorized users on your parents’ or guardians’ accounts.

Doing this can help you build your credit history without bearing legal responsibility for any debts you incurred.

How to Responsibly Build Credit For Minors and Young Adults

For Minors (Under 18)

It’s possible to build credit before reaching the legal age. And yes, becoming financially literate early would make building credit and a robust financial foundation much easier.

Building credit for minors often involves using alternative strategies. One of the best strategies for building credit for minors is by becoming authorized users on their parents’ credit cards.

Doing this allows them to benefit from their parents’ good credit habits and establish a positive credit history early on.

Another option is to open a joint account with a parent or guardian. With this option, both parties are responsible for managing the account.

However, before making minors authorized users or opening a joint account, ensure they have an idea of financial literacy. Teaching them about budgeting, saving, and responsible spending habits equips them with essential skills for effectively managing their finances.

For Young Adults (Over 18)

Once you’re legally eligible, you can begin actively working on building your credit profile. The best way to do that is by applying for a credit card, especially if you’re a student or young adult.

Start with a secured credit card or a student credit card, which may have lower credit score requirements. Use the card responsibly by making small purchases and paying off the balance in full and on time each month.

Another option for building credit is applying for a credit builder loan. You see, some financial institutions offer credit builder loans designed to help folks establish or improve their credit history.

With these loans, you make regular payments into a savings account or certificate of deposit, and once the loan is paid off, you receive the funds plus any accrued interest.

But, if you’re having trouble qualifying for credit on your own, consider applying for a credit card with a co-signer with good credit. The co-signer’s credit history can help you secure the credit you need, but remember that both parties are equally responsible for repaying the debt.

4 Expert Tips for Building Your Financial Literacy

Understanding financial literacy is crucial in helping you succeed when building credit. Learning about budgeting, savings, and responsible spending habits can equip you with the essential skills to manage your finances effectively.

Here’s how you can build your financial literacy:

Step 1: Learn Money Management

The first step to building your financial literacy is learning money management. These habits involve various practices that are aimed at helping you effectively handle your personal finances.

Here’s a quick rundown of some money management habits you should build:

A. Budgeting

Creating and sticking to a budget is critical. Doing this involves tracking your income and expenses so you can allocate funds effectively, prioritize your spending, and meet your financial goals.

When budgeting, keep track of how much you spend over 30 days. Compare how much you make a month to how much you spend and identify areas to cut back.

B. Savings

Set aside some of your income for emergencies, future goals, and retirement. This can help you build financial security and resilience.

When building your savings, separate the money you spend on your daily needs from the one you intend to save. Doing this can prevent you from using your savings for daily spending.

C. Investing

Understanding investing can help you grow your wealth. It’ll also help you understand different investment vehicles, risk tolerance, and building a diversified investment portfolio.

D. Financial Education

Focus on upgrading your financial education through books, courses, workshops, and online resources like World of Money, FamZoo, and The Wall Street Journal.

Understanding personal finance topics like taxes, insurance, and retirement planning empowers you with excellent decisions.

E. Financial Goal Setting

Setting SMART (specific, measurable, achievable, relevant, and time-bound) goals is one of the best ways to get financial direction and motivation.

It doesn’t matter whether you’re saving for a home, car, or retirement; setting clear goals can help you prioritize your savings and spending decisions.

F. Living Below Means

Adopting a lifestyle where your expenses are consistently lower than your income can help you avoid financial stress and build wealth over time.

And yes, this involves making conscious decisions that prioritize essential needs over wants and avoiding unnecessary expenses.

Step 2: Learn Good Saving Habits

“Making money is easy…

The difficult thing in life is not making it, it’s keeping it.” — John McAfee.

The best way to preserve your income is by practicing good saving habits. Here’s how you can build your savings habit.

A. Prioritize Savings: Some people only save when they feel like it. However, to build wealth, you’d have to treat savings as non-negotiable.

By making saving a priority in your budget, you ensure that you consistently set aside money for the future. Avoid impulse spending because it’s the fastest way to waste your finances.

B. Automate Your Savings: Building a consistent saving habit is challenging. One way to ease the process is by setting up automatic transfers from your checking account to your savings account.

This way, you can ensure that a portion of your income is saved before you have the chance to spend it.

C. Get Financial Education: As you build your savings, educate yourself about different savings vehicles and investment options. Doing this can help you make informed decisions about where to allocate your savings.

Your goal here should be to use the power of compound interest and long-term investing to build your savings quickly.

Step 3: Learn Good Credit Habits

Building good credit habits is the best way to build and improve your credit history and credit score.

Here are some critical credit habits you must learn and practice.

A. Understand Credit: Start by understanding what credit is and how it works. Learn about credit reports, credit scores, and the factors that influence them, like payment history, credit utilization, length of credit history, new credit inquiries, and credit mix.

This understanding will make managing, growing, or repairing your credit score much easier.

B. Checking Your Credit Report: Regularly review your credit report from the three major credit bureaus (Equifax, Experian, and TransUnion)—this way, you can check for inaccuracies or signs of identity theft.

Monitoring your credit report is the best way to identify and address errors promptly and maintain the integrity of your credit profile.

C. Paying Bills on Time: One of the most critical credit habits you must practice is paying your bills on time. That includes all your debt, credit card bills, loan payments, rent, utilities, and other financial obligations.

That’s because late payments won’t only significantly impact your credit score negatively but also attract late fees or penalties.

D. Managing Credit Card Use: Don’t get sucked into the habit of reckless spending. Always use your credit cards responsibly by keeping your credit utilization ratio below 30% of your total available credit.

Also, avoid maxing out your credit cards and aim to pay off your credit card balances in full each month to avoid accruing high-interest charges.

E. Get Your Credit Repair if Needed: If you’re struggling with a bad credit score, consider getting help from a reputable credit repair organization.

These experts can help you fix your credit score and provide guidance on budgeting, debt repayment strategies, and improving your credit health.

Step 4: Learn How to Track Your Finances

Tracking your finances puts you in the driver’s seat of your finances. Besides budgeting and setting SMART financial goals, here are other ways to track your finances.

A. Track Your Spending: Keep track of your daily expenses by recording every purchase you make, whether it’s through a mobile app, spreadsheet, or traditional pen and paper.

Review your spending regularly to identify areas where you may be overspending and look for opportunities to cut back.

B. Use Personal Finance Tools: Take advantage of personal finance tools and apps that can help simplify tracking your finances.

Many apps like Rocket Money and Goodbudget offer great features like expense tracking, budgeting, bill reminders, and financial goal setting. Using these tools can make staying organized and monitoring your financial progress easier.

C. Regularly Review Your Finances: Set out time to review your budget, track your spending, and assess your progress towards your financial goals.

Don’t forget to adjust your budget to accommodate changes in your income or expenses. Plus, feel free to celebrate milestones along the way.

Here’s How Early Credit Building Impacts Your Finances

Building credit early in life is crucial for securing a solid financial future. When you build credit at a young age, you lay the groundwork for better financial opportunities later.

Good credit paves the way for favorable loan terms, lower interest rates, and higher credit limits. When you need a loan or want to make a big purchase, like buying a car or house in the future, having good credit will work in your favor.

By establishing good credit habits early on, you set yourself up for increased financial flexibility and numerous opportunities down the road. For example, good credit can help you qualify for premium rewards cards with cash back or superb travel benefits.

Also, landlords often check your credit score when renting out apartments. Having a solid credit history can make this process smoother and more advantageous.

Take Action

Now that you understand the answer to the question, ‘at what age can you start building credit,’ it’s time to take action. Start by educating yourself further on responsible financial practices and the importance of a good credit score.

Remember, your credit history is like a plant; it needs nurturing and care to grow strong. So, take charge of your financial future today. Set yourself up for success by making wise credit decisions early on. Your future self will thank you for the groundwork you lay now.

FAQs

At what age can you start building credit?

You can start building credit at 18 years old, which is the legal age requirement in most states.

However, you may be able to become an authorized user on a parent’s credit card even earlier to establish credit.

What are some financial products available for minors to build credit?

Minors can use student or secured credit cards, joint accounts with parents, or custodial accounts to build their credit history early on.

How do I build good credit habits from a young age?

To build good credit habits as a minor, make timely payments, keep your balances low relative to your limit, and monitor your spending regularly. These practices will set you up for success in the future.

Can starting early with building credit have a positive impact later on?

Yes! Starting early allows you to establish a solid credit history over time. This can lead to better loan terms, lower interest rates, and increased trust from lenders when you need larger loans in the future.

Are there alternative ways besides traditional methods to build my credit score?

Yes! You can consider becoming an authorized user on someone else’s account or applying for a secured loan. These methods offer people without established credit histories opportunities to start building their scores.