Introduction
Building credit is an essential part of establishing a solid financial foundation. For 18-year-olds who are just starting out, building credit can seem overwhelming and confusing. However, with the right information and guidance, it’s easy to establish a positive credit history. In this article, we’ll explore some strategies for building credit at 18.
Start with the basics
Before we dive into specific strategies, let’s define some key terms. Your credit score is a number that represents your creditworthiness and is based on a variety of factors such as payment history, credit utilization, and length of credit history. Your credit report is a detailed summary of your credit history, including information on open and closed accounts, missed payments, and credit inquiries. Your credit history is the sum of all information in your credit report.
In general, your credit report and credit history are used to determine your credit score. Understanding these concepts is crucial for establishing good credit.
Consider opening a secured credit card
A secured credit card is a type of credit card that requires a cash deposit as collateral. This deposit serves as a guarantee that you will pay your bills on time. Secured credit cards are a great option for 18-year-olds because they are more attainable than traditional credit cards, which often require a higher credit score and income.
To use a secured credit card responsibly, make sure to only use it for purchases you can afford and pay your bills on time and in full each month. By doing so, you’ll establish good credit and may eventually qualify for an unsecured credit card with better rewards and lower fees.
Apply for a student credit card
As an 18-year-old, you may qualify for a student credit card. Student credit cards are designed with college students in mind and often offer lower credit limits and fees than traditional credit cards. Additionally, student credit cards may offer rewards and perks like cash back or points for purchases.
To use a student credit card responsibly, make sure to only use it for purchases you can afford and pay your bills on time and in full each month. This will help you establish good credit and may eventually lead to better credit card offers with higher rewards and lower fees.
Become an authorized user
Another way to build credit is to become an authorized user on a family member’s credit card account. When you are an authorized user, the credit card company reports your credit activity to the credit bureaus (the companies responsible for calculating credit scores).
To be an authorized user responsibly, make sure that the primary account holder is using the credit card responsibly and paying their bills on time and in full each month. Also, consider agreeing on clear guidelines for how the credit card should be used.
Make timely payments
One of the most important factors in building good credit is making timely payments. Late or missed payments can significantly damage your credit score and stay on your credit report for up to seven years.
To ensure that you make timely payments, consider setting up automatic payments or reminders for your bills. You can also set up alerts on your phone or email to stay on top of due dates.
Keep utilization low
Credit utilization is the amount of credit you’re using in relation to your credit limit. For example, if you have a $1,000 credit limit and you’ve spent $500, your credit utilization is 50%. High credit utilization can negatively impact your credit score.
To keep utilization low, consider paying off your balances in full each month. You can also spread out purchases over several credit cards to keep individual credit utilization low.
Monitor credit reports
It’s important to regularly monitor your credit report to ensure that there are no errors or fraudulent activity. You can obtain one free credit report per year from each of the three major credit bureaus: Equifax, Experian, and TransUnion.
To monitor your credit report throughout the year, consider signing up for a credit monitoring service or regularly checking your credit card account for any unusual activity. If you notice any errors or fraudulent activity, make sure to dispute them with the credit bureaus as soon as possible.
Conclusion
Building credit can be an overwhelming process, but with the right approach, it is attainable. By opening a secured credit card, applying for a student credit card, becoming an authorized user, making timely payments, keeping utilization low, and monitoring credit reports, 18-year-olds can establish a positive credit history. Remember, the key to building good credit is starting early and using credit responsibly.
