There are many ways to start building credit when you're young with no credit history. With a blank canvas to work with, you can make the transition to adulthood easier by learning how to responsibly manage your credit at a young age.
Understanding Credit and Why it Matters
Having a strong credit history and credit score are the keys to getting approved for credit cards, loans, mortgages, and more, making it easier to access the big-ticket purchases often needed in life. Better yet, having good credit allows you to qualify for better rates and terms on these accounts.
That’s not all credit impacts, either. Your credit can play a role in how much you pay for car insurance, your ability to get a job or rent a place to live, and if you qualify for utilities or a phone contract.
Creditors, lenders, and others who use your credit to make decisions will look at your overall credit profile, but will pay close attention to your credit score – a three-digit number that provides a snapshot of your ability as a borrower at a moment in time. FICO is the most common credit score in circulation and the one used by most lenders. Your FICO score ranges from 300 to 850, with anything 700 and above typically qualifying as "good."
Credit score providers are a little secretive about what exactly goes into calculating your rating, but they do provide an overview. The five main factors that go into your credit score are: payment history, length of credit history, amounts owed, mix of credit accounts, and new credit.
Of these, your payment history and amounts owed – which largely deals with your credit card balances compared to their limits – account for over 65 percent of your rating, making them the two most important by far. This means focusing on these two areas are also the best ways to build credit.
Ways You Can Build Credit at 18
In order to build credit, you need to open credit accounts and manage them responsibly. The problem is that lenders and creditors have no way of evaluating young adults who don't have a credit history, so it can be hard to get approved. Thankfully, there are a few time-tested methods you can use to establish and build credit at 18. Here are a few to explore:
- Authorized User: You can become an authorized user on somebody else's credit card. In this arrangement, you are added to an existing credit card and can benefit from its activity and age without having to be responsible for use or payments. The primary account holder can continue to use it normally, and you can benefit from their positive usage.
- Secured Credit Card: If you don't qualify for a traditional credit card, secured credit cards are typically easier to qualify for. A secured credit card requires you to make a deposit up front, which becomes your credit limit. You can use it just like a normal credit card, so make sure to keep your balance low and make all the payments on time. After using it responsibly for a time, you may be able to upgrade to a regular, unsecured card that doesn't require a deposit.
- Have Rent Payments Reported: If you're a renter, you can sign up for a service that reports your rent payments. This gives you the credit you deserve, as rent is a large expense to manage. Sign up with our trusted partner for free to have your rent payments reported.
- Get a Small Loan: Taking out a small personal loan, student loan, or credit-builder loan gives you a chance to successfully tackle an installment credit account. While some of these may be tougher to qualify for than a credit card, you could ask a parent or guardian to cosign for you.
An Auto Loan to Get Started
Building credit at 18 is a great way to set yourself up for success later on in life. Just remember to take it slow, get the hang of things, and make all your payments on time.
If you need a car and want to build credit, an auto loan can help you do both. At Auto Credit Express, we connect consumers dealing with unique credit situations to local special finance dealerships. See what we can do for you by filling out our free car loan request form today.