How to Build Credit at 18

Wednesday, May 8th, 2019
Updated: May 8th, 2019
The content is accurate at the time of publication and is subject to change.

Is it necessary to mention once again that credit history has a great influence on many aspects of our life, from renting an apartment to buying a house? Good credit opens doors to more attractive credit cards offers with lower rates and amazing rewards, a better job, a mortgage on favorable terms and much more.

Unfortunately, the good credit score cannot materialize in a second like a Cinderella’s dress. So you’d better start working on it as early as possible. Here are some tips on how to make a go of student years in order to build your credit.

Investigate the Issue

Congratulations, you’ve finally come of age! Now it’s time to wonder how to build credit. First of all, you should understand all these credit things.

As soon as you get your first credit card or a personal loan, issuers start sending information on your credit activity to credit bureaus: Experian, TransUnion, and Equifax. The information contained in your credit report determines your credit score that represents your creditworthiness. Guided by it, lenders make a decision on your future applications for a credit card or a loan. There are several types of credit scores, but the FICO score is more common. Here is its average range:

  • No/limited: 0-300
  • Bad: 300-639
  • Fair: 640-699
  • Good: 700-749
  • Excellent: 750-850

Of course, the higher your score, the better. If you’ve just turned 18, you are unlikely to have managed to own a credit card or a loan yet. But further developments are all in your hands.

One more thing you should remember is the factors influencing a credit score. Payment history is the weightiest point which determines 35% of your score. Then, there is the length of credit history – 30%, the credit utilization ratio – 15%, and the less significant but still important the credit mix – 10% and new credits – 10%.

Apply for a Credit Card

Remember that having a debit card is not the same as having a credit card. Debit cards don’t affect your score at all as they don’t report to any credit bureaus. And since your goal is to build a credit history, you know what to choose. There are some starter credit cards that do not expect you to have excellent credit:

  • Student credit cards. To get one of these cards, sometimes you don’t even need to be a student. Issuers just require you to be at least 18 and to show some kind of income proving you can afford to pay off your balance. Student cards often offer interesting perks designed specially for young people.
  • Secured credit cards. This kind of credit cards presupposes that you pay a security deposit of about $200. This sum protects the issuer and is to become the credit line you are allowed to use. Don’t be afraid, the deposit is refundable. Such cards also report to major credit bureaus and after some period (12-18 months on average), card issuers may let you turn your account into an unsecured one.

Apply for a Personal Loan

Apart from credit cards, you may consider personal loans. They typically offer lower interest rates than credit card’s APRs. Most of them are available to applicants with far from good credit. What is more, having both a credit card and a loan provides that credit mix factor.

Nevertheless, think about a loan only if you really need it (maybe you fancy buying a car). Don’t forget that big money you borrow must be returned in the future. So, don’t ask for too much. See your means in a proper perspective.

Be a Responsible Cardholder

From the very beginning, learn one rule, and you will never face credit problems in the future. Simply make payments on time according to a schedule of payments and maintain a low credit card balance. Note that in case you are going to miss payments, your score will never reach those longed-for 750 or more. Credit reports contain bad information on your account activity as well.

Keep an Eye on Your Credit Score

Besides timely payments, you should always be aware of what is going on with your score. Surveys show that those who monitor their credit report at least several times a year, cope with debts better.

Checking your credit report from time to time, you can always track changes for the worse and take prompt action to eliminate them. In addition, this simple action will help you notice if your report contains any inaccurate information. The process becomes even easier since there is an opportunity to check your credit score online.

Don’t Go Too Far

Credit cards and loans may certainly help you build a credit history. However, do not overdo it in this matter. Remember that the more credit cards you have, the harder it’ll be for you to manage with them. This will only bring the opposite effect. The best solution is not to drive yourself into debt and gradually increase the amount of total credit in proportion to the increase in your income.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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