How to Build Credit at 18
It’s never too early to start building credit . If you’re 18 and just starting out, here are a few things you can do to get started on the right foot.
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Building Credit for the First Time
Establishing credit is an important part of financial planning, and it’s something you can start working on now. There are a few things you can do to start building credit, such as getting a secured credit card or becoming an authorized user on someone else’s credit card. You can also start building credit by taking out a small loan from a credit union or online lender. In this article, we’ll give you some tips on how to build credit at 18.
Start with a secured credit card
If you have no credit history, it can be tough to qualify for a traditional credit card. But there are cards designed specifically for people in your situation. A secured credit card requires a deposit, and that deposit secures your credit line. Which means you could build your credit without worrying about going into debt.
Here’s how it works: You apply for the card and make a deposit into a savings account that the issuer holds. That deposit is often equal to your credit limit. So if you put down $500, you have a $500 credit limit—pretty straightforward so far. When you use the card and make on-time payments, the issuer reports your activity to the major credit bureaus. As you build a positive payment history, you could eventually qualify for an unsecured card, which means you wouldn’t need to put down a deposit.
Get a co-signer
One of the best ways to build credit at 18 is to get a co-signer. A co-signer is someone who agrees to be responsible for your debt if you can’t pay. This can be a parent, guardian, or other relative.
The co-signer will need to have good credit themselves. They’ll also need to be willing to help you if you can’t make your payments. This is a big responsibility, so make sure you choose someone you trust.
Once you have a co-signer, you can apply for credit cards and loans. Be sure to make your payments on time and in full each month. This will help you build good credit and avoid damaging your co-signer’s credit.
One of the best ways to build credit for the first time is to become an authorized user on someone else’s credit card account. This can be a parent, other relative, or trusted friend. As an authorized user, you’ll have your own card linked to the account and will be able to use it just like any other credit card. The activities on the account will then be reported on your credit report, helping you to build a positive credit history.
If you can’t become an authorized user, another option is to get a secured credit card. With a secured card, you’ll need to make a deposit that serves as collateral for the account. This deposit is usually equal to your credit limit, so it acts as a kind of safety net in case you can’t make payments. Because secured cards are backed by collateral, they’re often easier to get approved for than unsecured cards.
Managing Your Credit
Check your credit report regularly
You should check your credit report at least once a year to make sure that the information is accurate and that you’re on the right track. You can get a free copy of your credit report from each of the three major credit reporting agencies — Equifax, Experian and TransUnion — every 12 months through AnnualCreditReport.com. You can also request a free credit report if you’ve been denied credit, you are a victim of identity theft or you have other specific reasons for wanting one.
If you find errors on your credit report, take steps to correct them as soon as possible. You can file a dispute with the credit bureau online or by mail, and you should also tell the company or companies that supplied the incorrect information to the credit bureau.
Make your payments on time
One of the most important things you can do to build your credit is to make all of your payments on time. This includes your rent, utilities, credit cards, and any other bills you may have. Payment history makes up a large portion of your credit score, so it’s important to keep this in mind.
If you’re just starting out, you may not have a lot of bills to pay. In this case, it’s still important to make sure that any payments you do have are made on time. You can also sign up for automatic payments to help make sure your bills are paid on time each month.
In addition to making your payments on time, it’s also important to keep your balances low. If you have credit cards, try to keep your balances below 30% of your credit limit. This will help improve your credit score and show lenders that you’re a responsible borrower.
Keep your credit utilization low
Credit utilization is the second most important factor in your credit score. It accounts for 30% of your score, so it’s important to keep it low. Credit utilization is the amount of credit you’re using relative to your credit limit. For example, if you have a $1,000 credit limit and a balance of $500, your credit utilization would be 50%. The lower your credit utilization, the better for your score. Aim to keep it below 30%.
The Benefits of Good Credit
Just because you’re young, it doesn’t mean you can’t start building credit. In fact, it’s a good idea to start building credit early. Good credit can help you in many ways, such as getting a lower interest rate on a loan, getting a better credit card, and even getting a job.
Lower interest rates
One of the most important benefits of having good credit is that you can save a lot of money in interest charges over the course of your life. Interest is the charge that lenders add to loans to compensate them for the risk they take on by lending you money. The higher your credit score, the lower the interest rate you’ll be offered on loans. That’s because people with high credit scores are less likely to default on their loans, meaning the lender is at a lower risk of not getting their money back.
Better credit card offers
One of the primary benefits of having a good credit score is that you will be more likely to be approved for a credit card and receive better terms on the card. For example, if you have a good credit score, you may be able to qualify for a credit card with a lower interest rate, annual fee, or other perks, such as cash back or rewards points. In addition, good credit can help you qualify for a “secured” credit card, which requires a deposit that serves as collateral in case you don’t make your payments. This can help you build credit if you don’t have any credit history.
Better loan offers
One of the most important benefits of having good credit is that you’ll be able to get more favorable loan terms. Lenders view borrowers with good credit as less of a risk, which means they’re more likely to offer you lower interest rates and better terms. For example, if you’re looking to buy a car, you could save hundreds or even thousands of dollars over the life of the loan by having good credit. The same is true for other types of loans like mortgages and personal loans.
