{"id":358222,"date":"2022-01-07T07:00:00","date_gmt":"2022-01-07T14:00:00","guid":{"rendered":"https:\/\/www.creditrepair.com\/blog\/?p=358222"},"modified":"2022-04-18T13:12:58","modified_gmt":"2022-04-18T19:12:58","slug":"how-to-build-credit-at-18","status":"publish","type":"post","link":"https:\/\/www.creditrepair.com\/blog\/credit-101\/how-to-build-credit-at-18\/","title":{"rendered":"How to start building credit when you turn 18"},"content":{"rendered":"\n
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Disclosure regarding our editorial content standards<\/a><\/em>.<\/p>\n\n\n\n

Turning 18 is a huge milestone: You\u2019re likely preparing to go off to college or trade school, planning out your gap year or applying to jobs. Your finances are an incredibly important aspect of your life\u2014from student loans and rent to being in charge of your budget for the first time. You\u2019ve probably been hearing about credit and how important it is as well.<\/p>\n\n\n\n

Because building good credit<\/a> takes time, it\u2019s essential to start at a young age to help secure low-interest loans on mortgages, cars and other assets in the future. Below, we discuss seven ways to build credit at 18 so you can set yourself up for financial success at a young age.<\/p>\n\n\n\n

1. Understand what makes up your credit score<\/h2>\n\n\n\n

When it comes to understanding credit, it can feel overwhelming at first\u2014what\u2019s your credit score? How do you calculate debt-to-income ratio<\/a>? What does APR mean?<\/p>\n\n\n\n

Take a deep breath! You don\u2019t need to memorize everything on day one. Credit health is a lifelong practice, so lace up your shoes\u2014this is a marathon, not a sprint. Thankfully, it\u2019s easy enough to start with the basics to get started on the right foot. There are a few distinct factors that are important to think about when building credit:<\/p>\n\n\n\n

  1. Payment history:<\/strong> Paying bills on time is important for many reasons, from keeping interest rates low to establishing good credit. Payments that are 30 days or more late will have a negative impact.<\/li>
  2. Credit utilization:<\/strong> This is the ratio of your outstanding credit card balance to your credit card limits. Low credit utilization is ideal\u2014it shows that you\u2019re only using a small amount of credit loaned to you. Try to use 30 percent or less of your available credit at a time.<\/li>
  3. Age of credit:<\/strong> The longer you\u2019ve had credit, the better you\u2019ll look to lenders. They want to see someone with an established credit history, which ties into your payment history and credit utilization. This one will be trickier to nail when you first get started, but we have some tips later about how to help this aspect of your credit.<\/li>
  4. Debt:<\/strong> Carrying a good deal of debt can greatly affect your score and ability to get approved for loans in the future.<\/li>
  5. Inquiries:<\/strong> It\u2019s best to limit the number of credit inquiries you have if you want a good score. There are two types: soft and hard. A soft inquiry<\/strong> is when your credit is pulled as part of a background check, typically by you or another person, and it won\u2019t affect your score. A hard inquiry<\/strong> occurs when a financial institution checks your credit for a lending decision like a loan or mortgage. You have to authorize hard inquiries, and they can negatively affect your credit score if performed often.<\/li><\/ol>\n\n\n\n
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    Even though it\u2019s difficult to build credit when you don\u2019t have various lines of credit and you\u2019re just getting started, there are steps you can take to show lenders that you\u2019ll be responsible with a loan.<\/p>\n\n\n\n

    2. Become an authorized user<\/h2>\n\n\n\n

    One of the most effective ways to start building credit at a young age is to become an authorized user<\/a> on a friend or family member\u2019s account. The primary cardholder simply adds your name to the credit card account, and you have the ability to make purchases with that card. Even if you don\u2019t use the card, the account can still go onto your credit report and help build your credit score, as you benefit from the age of that account.<\/p>\n\n\n\n

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    It\u2019s important to make sure the primary account holder has responsible financial habits. If they acquire too much debt or fail to make payments on time, this could damage both parties\u2019 credit scores. You\u2019ll also want to make sure the credit card company reports card activity for authorized users beforehand or else you won\u2019t benefit.<\/p>\n\n\n\n

    3. Take out a (small) loan, like a credit builder loan<\/h2>\n\n\n\n

    While we don\u2019t recommend taking on debt simply to build credit, if you have a valid reason to take out a small loan\u2014like a student loan<\/a>\u2014it\u2019s a helpful way to build on your short credit score history and prove that you can handle debt.<\/p>\n\n\n\n

    However, if you do take out a loan, we recommend it be small\u2014maybe a few thousand dollars\u2014and you must make payments on time each month. This helps legitimize your case as a consumer who can make payments on time and thus is a good credit risk.<\/p>\n\n\n\n

    A credit builder loan is an option offered by smaller financial institutions like credit unions and community banks. Because they are designed to help people who have bad or little to no credit, the amount borrowed is held in a bank account while you make payments and build credit. Once the loan is paid off, then you receive the money. For this reason, you need to prove you have income to afford the payments, so it\u2019s safest to choose a low loan amount.<\/p>\n\n\n\n