Establishing Credit as a Young Adult: A How-To Guide
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As a young adult, building credit can seem like a daunting task. However, establishing good credit as early as 18 is crucial for your financial future. Here are some tips to help you start building credit as a young adult after you understand how credit scores are calculated.
What age do you start building credit?
At 18 years old you can establish credit. However, you can start building credit as a teenager if you’re added as an authorized user on a parents credit card. Lets get into the details.
How can a young adult start building credit?
1. Open a Credit Card Account
Opening a credit card account is a great way to start building credit (you must have a job and a way to repay to apply). However, it’s important to use it responsibly. If its your 1st credit card and you have no credit history, I would recommend applying with your credit union. Credit Unions often offer starter cards. If that’s not an option Capital One, Destiny Mastercard and Milestone Mastercard both offer good starter credit cards to build credit.
Only charge what you can afford to pay off each month and make sure to make your payments on time. Late payments can negatively impact your credit score. DO NOT OVERAPPLY! EACH CREDIT APPLICATION DINGS YOUR CREDIT SCORE.
Starter credit cards do typically have an annual fee and higher interest. The goal is to use them just enough to get a year of good payments reported.
2. Become an Authorized User
If you’re not ready to open your own credit card account, consider becoming an authorized user on someone else’s account. This will allow you to build credit without having to take on the responsibility of managing the account. Just make sure that the person whose account you’re using has good credit habits.
3. Apply for a Secured Credit Card
If you’re having trouble getting approved for a traditional credit card, consider applying for a secured credit card. With a secured credit card, you’ll need to put down a deposit that will serve as your credit limit. This can be a great way to establish credit if you have little to no credit history.
4. Pay Your Bills on Time
Making timely payments on your bills is crucial for building good credit. Late payments can stay on your credit report for up to seven years and can have a negative impact on your credit score. Make sure to set reminders for yourself or set up automatic payments to ensure that you don’t miss any payments.
5. Keep Your Credit Utilization Low
Your credit utilization is the amount of credit you’re using compared to your credit limit. It’s important to keep this ratio low, as a high ratio can negatively impact your credit score by increasing your credit utilization. Try to keep your credit utilization below 30%.
Monitor Your Credit Report
It’s important to monitor your credit report regularly to ensure that there are no errors or fraudulent activity. You’re entitled to a free credit report from each of the three major credit bureaus once a year. Take advantage of this and make sure to review your report for any errors.
Building credit as a young adult may seem overwhelming, but it’s important to start early. By following these tips, you can establish good credit habits that will benefit you in the long run. Remember to use credit responsibly and make timely payments to ensure a strong credit score.
As you make monthly payments, each reports to the credit bureaus, increasing your score. Understanding how your credit score is measured is important to ensure you don’t have any set backs and use your new credit wisely.
