When It’s the Right Time to Start Building Credit?

Tuesday, March 17th, 2020
Updated: March 17th, 2020
The content is accurate at the time of publication and is subject to change.

While they say that it is never too late, it is not too early as well. Or is it? When is it actually best to start to think about establishing a credit history? Let’s figure it out.

Building Credit for Those Under Age

We will not surprise anyone by stating that it is impossible to apply for a credit card until you turn 18. However, it doesn’t mean that you should just sit on your hands until then. Most credit card issuers provide one nice option that minors can take advantage of. The option is adding authorized users to a credit card account.

Who are these authorized users and how/where can they be added, if you are unable to get a card on your own yet? The answers are much easier than you might think. Authorized users are extra card users who can be added to the main credit card, for free or for a certain fee, and also use the money on the account. And you can become one with the help of your parents. They just need to turn to the bank and request adding you to their credit card. Note that some issuers don’t have restrictions, but others may limit the authorized users’ age.

Authorized users get their own plastic card and, as a rule, can make purchases, report stolen or lost cards, and make payments, which will be more than enough for newcomers. But the main catch is that before you start the whole process, you need to find out if the card issuer reports authorized user accounts to the credit bureaus so that your credit score becomes visible and starts to increase. If so, using the card in a proper way will lead you to first small credit results and approval for a more attractive card in the future when you are eligible.

Building Credit for Those of Age

If you are already over 18, congratulations, you can independently qualify for your first own credit account. We say “credit account” because there are two options to apply for: credit cards and personal loans. Note that prepaid debit cards are useless when it comes to building credit. They are not reported to any credit bureaus and don’t impact on your score.

A small clarification in advance: the main condition for getting any credit product is to show the issuer that you have some stable monthly income and will be able to pay back the money you will spend. This does not necessarily imply having a job, as many think. For example, if your parents transfer you money every month, this can also be indicated as income when applying.

Let’s start with credit cards. It is not difficult to guess, there are not so many options for people with no credit. It is best to start with a secured credit card. Such cards are designed for people with limited credit history. But you should be ready to make a security deposit (usually from $200) to protect the bank from possible losses. This sum will become your credit line to spend. Don’t worry, the bank will return the deposit when you switch your account to unsecured or close the card with no debt.

Now let’s move on to personal loans. They may be catching as typically offer lower interest rates than credit card’s APRs and provide you with cash. Moreover, most lenders are open to considering applicants with any credit. Still, we would recommend you apply for a loan only if you really need cash right now. Otherwise, if you just apply to build credit, you tend to make the received money fly at the speed of light for some unnecessary purchases. Keep in mind that you will anyway have to gradually return the borrowed amount to the bank with interest added.

Building Credit for Students

To our mind, students should be pointed out as a separate group. And here is why. Students have an exclusive right to apply for special student credit cards. Such cards are usually more beneficial than other starter offers and sometimes come with even better perks than general good credit credit cards. This is because they are specifically aimed at students and try to take into account needs of young people. If you are a student, you should definitely not miss the opportunity.

Bottom Line

Now you have a clear guide to action. Remember, the earlier you begin to devote time to your credit, the easier and faster it will be to achieve a good or excellent credit score in future, and, by this, get top credit cards with lower interest rates, higher credit limits and attractive rewards and perks, as well as mortgage offers and car loans on more favorable terms.

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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