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How to Start Building Credit at 18: Starting Off Right

Just turning 18? Here’s how to build your credit score early.

Justin Cupler

Contributing Writer at Tally

December 1, 2021

A lot changes once you turn 18. At 18, you can start obtaining credit, including credit cards and loans. 

But here’s the catch. At that age, you have no credit history, so you have no credit score. Many lenders consider a lack of credit score almost as negative as a bad credit score. 

Fortunately, there are plenty of options to help you in your quest to build a good credit score. Let's dive right into how to start building credit at 18. 

How to start building credit at 18

This is the paradox of credit: You need credit to build your credit score, but you can't get credit without a credit score.

Once you turn 18 and look to get credit, you may face frequent rejections due to your insufficient credit history. This generally means you have no credit score because you've never had credit. 

Here are some ways to obtain the credit you need to build a good credit score once you turn 18 years old. 

Become an authorized user

If you have friends or family members with credit cards and make on-time payments, you can ask them to add you as an authorized user. You’re legally allowed to use the credit card as an authorized user, though you may not receive a physical card. The account will also appear in your credit report, so the on-time payments the cardholder makes may help improve your credit score. 

Keep in mind, though, if the user starts making late payments or suddenly starts running up the credit card balance, this could harm your credit score. 

Get a secured credit card

A secured credit card, sometimes called a starter credit card or student credit card works just like a traditional credit card but requires a security deposit to protect the credit card company from your potential default. The security deposit will vary by the credit card issuer, but it's often the same amount as the credit limit. 

Use this secured card responsibly by only spending up to 30% of the credit card balance and paying off the balance in full each month to avoid interest charges

Some secured credit cards only require the deposit for a set period. Then they’ll offer you a traditional unsecured credit card. If your secured credit card doesn't offer this, use the card responsibly until you have a high enough credit score to get a traditional card, then cancel the secured credit card. 

Also, it's good to verify that the credit card company reports to all three credit bureaus: Experian, Equifax and Transunion. If the credit card doesn't advertise this reporting strategy, you can call the credit card company's customer service to check. 

You'll also want to see if there’s an annual fee, as these can cost $35 per year or more. 

Get a credit builder loan

Some financial institutions — banks, credit unions and online lenders — offer credit builder loans, which are personal loans with a twist. The lender approves the loan with an interest rate, just like a personal loan, but the cash from the loan is placed in escrow instead of going directly to you.

The lender reports your on-time payments to the major credit bureaus, which will help build your credit. 

Once you pay off the loan, the lender will release the funds to you. At this point, you may have built good enough credit to get a traditional personal or car loan. 

Take out student loans

Are you thinking about going to college or just taking a few classes? A student loan could build your credit. Plus, federal student loans require no credit check, except PLUS loans. This means you can get the credit you need without a credit check. 

Plus, you can make payments while in forbearance (the period you’re not required to make payments) during your college years to help build a positive payment history. 

The only downside is federal student loans have a 10-year repayment period after graduating. So, if you make only the minimum monthly payments, you'll be saddled by this debt for a decade. 

Get a cosigner

If you're trying to get a traditional personal or auto loan and keep getting rejected due to a lack of credit, a cosigner may help. A cosigner is usually a trusted friend or family member willing to be financially responsible for the loan if you default. 

If the cosigner has good credit, this could be all you need to get approved for that loan and build your credit score. 

Keep in mind; if you're late on the loan or default on it, the negative credit impact will also hurt the cosigner's credit score. This could cause severe strain on a relationship. So, make sure you can afford the payment before you get a cosigner. 

Your credit score, broken down

Your credit score is essentially a financial report card that tells lenders and other interested parties how well you manage debt. There are countless credit scoring models, but most lenders use the FICO score. 

Your FICO score ranges from 300 to 850, and this score is based on five key factors:

Payment history 

Your payment history is your ability to make on-time payments. As long as you make at least the minimum monthly payment within 30 days of the due date, a creditor can't report you as late. With every 30 days, the more significant the impact on your credit score. It also considers all wage garnishments, judgments and collections accounts. Payment history has the most significant impact on your credit score at 35%.

Amounts owed 

The amounts owed variable considers all the debts you owe and impacts your score negatively if you show signs of being overextended. A large part of this variable is your credit utilization ratio — your total revolving debt balances, such as credit cards and lines of credit, relative to your revolving credit limits. A good rule of thumb is to keep your credit utilization below 30%, but FICO takes no official stance on this. Amounts owed accounts for 30% of your FICO credit score.

Length of credit history

The length of credit history variable considers the average age of your debts. The older the debt, the better. This variable considers three items to determine your average debt age: how long your accounts have been established, how long specific types of credit have been open and how long it's been since you used each account. Length of credit history accounts for 15% of your FICO score. 

Credit mix 

Your credit mix is the various types of debts on your credit report: revolving debt and installment loans. If you have all revolving or all installment debt, it may negatively impact your credit score. Having a mixture of debt types shows your ability to manage varying accounts, which demonstrates financial aptitude. Credit mix accounts for only 10% of your FICO score. 

New credit 

The new credit variable considers all aspects of securing new debts. It looks at three main factors: how many new accounts you have, how many hard credit inquiries you've had in the last 12 months and how long it's been since you opened a new account. If you show too much activity in any of these three areas, it indicates you may be heading toward overextending yourself, so it could hurt your credit score.


Why a good credit score is so important

If you use an excellent credit score to create debt, what's the point of having a good score, right? That sounds logical, but debt can sometimes be a good thing, such as financing a home or car. Plus, you can reap the benefit of rewards credit cards when you have good credit too. 

Here are other reasons a good credit score is so important. 

Renting a home

Many landlords perform a credit check when deciding if you can rent from them. If you have no credit, they may pass the home to a more established applicant. With a great credit score, you ensure you're near the top of the applicant pool. 

Lower interest rates

With a fair or average credit score, you may get approved for a loan, but you'll likely have a high interest rate. With good credit, you can get some of the best interest rates available, saving you tons of money in the long run. 

Money in a pinch

If you're still building your emergency fund, you may not have large enough savings to cover a big emergency. In this case, you may have to fall back on a personal loan, line of credit or credit card. With a good credit score, you're more likely to get approved for this if needed. 

Build credit now for a more manageable financial future

Many people aren't concerned with how to start building credit at 18, as they haven't reached the point of needing it. But once that time arises and you have no credit score, you'll wish you’d built it. 

Fortunately, there are many ways to start building credit at 18, and none are overly difficult. From getting a secured credit card to adding a cosigner, these straightforward credit-building options will get your personal finances heading in the right direction. 

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