I. Introduction
Building credit is an important responsibility that young adults should start working on as early as possible in life. It establishes a financial history that helps prove creditworthiness when applying for loans or renting apartments. While most young people may be overwhelmed by the task, there are several tips and strategies for 18-year-olds to start building their credit.
This article aims to highlight some of the most important tips and strategies for establishing good credit and maintaining it over time. Throughout the article, we’ll discuss opening a secured credit card, becoming an authorized user, applying for a student credit card, paying bills on time, monitoring your credit report, keeping credit card balances low, and avoiding applying for too much credit at once.
II. Tips for Building Credit at 18
A. Open a Secured Credit Card
To begin building credit at 18, opening a secured credit card is a great first step. Unlike a traditional credit card, a secured credit card requires a deposit that acts as collateral for the credit card holder’s line of credit.
An applicant for a secured credit card may be required to have a cosigner, as they are still building their credit. When choosing a secured credit card, be sure to select one with low fees and a low interest rate. Making responsible payments is also key, so use the card for small purchases and pay off the balance in full each month.
B. Get added as an Authorized User
If you know someone with a good credit history, it is best to be added as an authorized user on their credit card account. In most cases, the credit card issuer will report the account information to the credit bureaus, establishing a credit history for the authorized user.
When being added as an authorized user, it is important to find a trustworthy person whose account has been open for a long time and has always made timely payments. As an authorized user, it is also important to have a clear understanding of how you will use the credit card. Don’t use it excessively and make sure to monitor the account every month to ensure responsible use.
C. Apply for a Student Credit Card
Student credit cards are designed specifically for students who are building credit. They usually come with lower limits and lower interest rates than traditional credit cards and offer perks such as cashback rewards or points for every dollar spent.
When applying for a student credit card, be sure to do research on all of the offers on the market. Look for cards with no annual fees and low interest rates. Always read the fine print and ensure that you understand the terms and conditions of the card before using it.
D. Pay Bills on Time
Paying bills on time is one of the most important steps to establish and maintain good credit. Paying bills late or missing payments can damage a credit score quickly, and the hard work it takes to improve it may take years.
It is important to stay organized by keeping track of all bills that need to be paid, setting up automatic payments and reminders, and developing a budget to ensure that all bills are paid on time. Bills that need to be paid on time include rent payments, utility bills, phone and internet bills, loan payments, and credit card bills.
E. Monitor Your Credit Report
Monitoring your credit report is a key factor in understanding how to improve your credit score. Credit reports reveal all of a person’s financial activities, including credit card use, payment history, and whether any collections or bankruptcy actions have been made against them.
To effectively monitor your credit report, make sure to pull your credit report at least once a year, checking for any errors or fraudulent entries. If you find an error, report it immediately to both the credit bureau and to the company that provided the information, so the correction can be made.
F. Keep Credit Card Balances Low
Keeping credit card balances low is essential to building a good credit history. The balance-to-limit ratio, also known as the credit utilization ratio, is an important factor in determining your credit score.
To keep the balance low, it is important only to charge purchases that you can pay off with available funds. Avoid using credit to finance large purchases, and try not to use more than 30% of the credit limit on any one account. If a higher balance must be carried, the balance should be paid off as soon as possible.
G. Don’t Apply for Too Much Credit at Once
When young adults become 18, it can be tempting to apply for several credit cards at once. However, applying for too many credit cards in a short period can harm your credit score significantly.
Credit applications result in hard inquiries that stay on your credit report for two years. These inquiries can negatively impact your rating, sometimes up to five points. To avoid unnecessary damage to your credit score, only apply for credit cards when you need them.
III . Conclusion
Building credit is a critical first step to achieving financial stability. As a young adult, it can be challenging to navigate complex financial topics, but with commitment and the proper knowledge, building credit can become a natural progression. By following the tips outlined in this article, young adults can start building credit responsibly and manage their finances efficiently.
Remember, building credit is not a one-time process but a long-term commitment. With every responsible purchase, a young adult moves closer to achieving their financial goals. When you apply for a loan or a credit card in the future, your good credit history will help more lenders provide you with good credit terms.
For more information on building credit for young adults, check out resources such as the Federal Trade Commission, Consumer Financial Protection Bureau, and personal finance blogs.
