You can establish credit at age 18, but it’s never too early to start building credit. If you want to give your child a head start, there are ways for kids to start building credit as an authorized user on your credit card as young as age 13. Beyond directly building credit, some research shows that credit and financial habits start forming as early as age 3.
Below are some of the best tips to start your teen on the path to lifelong good credit.
How to start building credit early
If you want to give your child a financial head start, the five steps below can help your child establish credit and have a good credit score by the time they’re ready to rent their first apartment.
Become an authorized user
Each credit card company has a different minimum age for someone to become an authorized user. This is often the first step someone can take to establish credit.
By becoming authorized users, teens start to learn responsibility. However, if your credit score is low, it’s worth building it up before adding your child as an authorized user.
Keep in mind that if you give the authorized user access to a credit card, you’ll be responsible for paying off any charges they make. For this reason, it’s important to teach good habits like spending less than you earn before giving the authorized user access to a card.
Apply for a secured credit card
With a secured credit card, you deposit funds first, and those are used against the card’s credit limit. It is a low-risk way to establish a credit history and build responsible spending habits. The higher the deposit, the higher the credit limit. You can get a secured credit card with as little as $200 to $300 deposited. Many banks also allow users to get a secured credit card against a savings account or credit union account.
Consider a student credit card
A student credit card is designed to help college students establish credit. Some student credit cards offer rewards like cash back or student-centric benefits to give college students a bit more each month. For a student credit card, students will need to be at least 18 and have a Social Security number. Many will also need a co-signer, although some student credit cards allow people with low or no credit to qualify as long as they have adequate proof of income.
Look into credit-builder loans
Credit-builder loans can be a way to establish a credit history faster. With a credit-builder loan, the lender deposits the loan amount into a savings account or certificate of deposit (CD). You can only access the funds when you’ve repaid the full loan amount. It’s a no-risk way for lenders to help you build a credit history.
Explore safe 0% APR cash advances
Some credit cards or online banks offer short-term 0% annual percentage rate (APR) cash advances that can be used to build credit history or establish credit. Do your research before taking out a 0% APR cash advance, as hidden fees can add up. Usually, you can establish credit at 18 using a 0% APR cash advance.
Top credit-building tips
Once you’ve got a credit card, credit-building loan, or another way to build credit history, it’s important to plan accordingly to avoid building bad credit. For that, it’s important to know what banks look for and plan to meet their criteria each month.
Make timely payments
On-time payments make up 35% of your credit score. Whether it’s your first credit card or a loan, 100% on-time payments will go a long way toward building good credit history. If you can’t pay off the full amount, make sure you pay at least the minimum due before the payment due date. A single late payment can affect your credit score for seven years, so be sure to stay on top of it.
Understand how credit works
In addition to on-time payments, there are five factors that affect your credit score in varying percentages:
- 35% payment history
- 30% amount owed (debt)
- 15% length of credit history
- 10% number of new credit lines
- 10% credit mix (revolving, installment and open credit)
For each of these, there are actions you can take to help or harm your credit score:
- For payment history, pay all accounts on time every month.
- For the amount owed, ideally, pay off all credit cards every month in full, or keep the debt below 30% of available credit.
- For the length of credit history, the longer the better. Consider becoming an authorized user on the account of a relative or friend with 20-plus years of credit history and a good credit score.
- For the number of new credit lines, don’t apply for many credit cards or loans at once. Consider only applying for one or two credit cards or loans every six months.
- For credit mix, a credit card and a credit-builder loan are two different types of credit that will represent a good credit mix. If you have student loans or an auto loan and a credit card, that will also usually be enough for a good credit mix.
Keep these tips in mind, and you’ll start building up your credit score reliably.
Avoid overspending
One of the most important things to remember as you’re establishing credit is that it is borrowed money. Never borrow more than you have. While it can seem virtual, it can have very real impacts on your financial future, from interest rates on a mortgage to the ability to get an auto loan.
If you’ve got a budget of $200 per month for credit card expenses, don’t spend more than $200. Borrowed money is never free, and you’ll end up paying a lot in interest if you don’t pay off the full amount.
Monitor your credit reports
While building credit, it’s important to monitor your credit report to make sure there isn’t any incorrect or missing information on it. You’re entitled to a free online credit report every year from the main credit bureaus: Experian, TransUnion, and Equifax. If you find missing or incorrect information, you can contact the credit bureaus or file a dispute.
Request a higher credit limit
If you have the income to charge more on a credit card, requesting a higher credit limit can improve your credit score by lowering credit utilization. After six months of paying bills on time, you can request a credit increase. If you establish credit at 18, you’ll be able to request a credit line increase after six months and may see an improved credit score. Here’s an example:
If you have a credit limit of $1,000 and spend $500 each month, your credit utilization is 50%. If you request a credit limit increase and are approved for a credit limit of $3,000 and still spend $500 a month, your credit utilization decreases to an optimal level of 16.6%.
Final thoughts on what age should you start building credit
Because 15% of credit history is based on the length of time with credit, establishing a credit history early has distinct advantages. A teenager as young as age 13 can establish credit by becoming an authorized user. But before rushing to add a 13-year-old as an authorized user, it’s important to help them build responsible credit habits.
It’s never too early to start building good credit habits You can teach young children the basics of savings and earning money. By the time they’re teens, they could use a credit card to pay for some of their activities or clothes and learn to manage a budget. Just be sure to remember the basics, pay the card on time each month, and don’t spend more than you have.
FAQ
Can you build credit before 18?
Yes, you can establish credit before 18 by becoming an authorized user on someone else’s credit card. or getting a credit-builder loan/
Can you build credit at 17?
Yes. You can build credit at 17, but you’ll have to think beyond traditional credit products. Consider becoming an authorized user to quickly build credit history. You may be able to qualify for a secured loan through your bank.
How old do you have to be to get a loan?
You can get a secured loan at age 18.
Alison Kimberly Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability. She has been writing for various non-profit organizations for 15+ years. When not writing, you will find her promoting education and meditation in the developing world, or hiking and enjoying nature.
