How to Build Credit As a Teenager

How to Build Credit As a Teenager

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Building credit can be a new topic for many teenagers. As such, there’s more to do than just diving into some of the credit-building activities you’ll find here. 

There are several key steps to the process that you will need to undergo to get started. 

Here are a few of the main areas to focus on as you begin your credit journey. 

Educate Yourself About the Basics of Finances

Some teenagers are lucky enough to have financially aware and responsible families. 

Others may be fortunate enough to have a school that educates teens about various financial topics. 

However, some people will need to learn more about financial responsibility on their own. 

Educating yourself about the basics of finances lays the foundation for better credit management. 

But with such a broad topic, where do you get started? Here are some important financial topics to begin looking into. 

  • Budgeting. Without proper budgeting skills, maintaining good credit can be near impossible. Knowing how to manage risk without putting yourself at risk of delinquency is a must. Learn how to budget for life based on your current financial situation so you’re not overspending. 
  • Saving. Life happens. When it does, it’s best to be prepared. Having debts to pay off and other unforeseen expenses can quickly drain your funds. Saving for both now and the future can save you from delinquency and choosing between essentials. 
  • Spending Wisely. Having money when you’re younger can be an exciting prospect. However, that doesn’t mean you have free reign entirely. From rent to car payments and even groceries, life costs money. Knowing how to balance wants and needs is a skill that will take you far. 

The more you educate yourself in money management, the more financially successful you can be!

Become an Authorized User on Your Parent’s Credit Cardx

Getting approved with limited or no credit can be a challenge. Additionally, you may not know which card to get started with. 

Fortunately, there’s a workaround. 

Starting your credit journey as an authorized user on a credit card is one solution. 

Authorized users are individuals who are authorized to use a credit card. Unlike the person who applied, they’re not subjected to a credit check to use the card. 

Authorized users get the benefit of the primary card user’s credit history and other credit habits added to their credit standing. Just be sure that whoever you ask to become an authorized user on their account has excellent credit.

Authorized users are not held financially liable by the company if payments go missed, but their credit will suffer if it does happen. Your credit can go down if the authorized user fails to make a payment.

Pay off a Student Loan

Many teens consider college to jumpstart their career goals. 

However, they most likely won’t have the means to pay for their education. 

Enter student loans. 

Student loans are reported to the three major credit bureaus. Better yet, they don’t need to be paid back until you’re out of college. This gives you ample time to save up in anticipation to tackle them. It also makes it easier to build credit at 18

If you have any issues, you can work with your loan provider to discuss monthly repayment terms that work for you. They’re a very flexible way to build credit history and raise your score. 

Get a Credit Builder Account

Credit-builder accounts are an excellent tool for those who have no credit history. It’s also perfect for those who want to get started without a credit card

A credit-builder loan is a unique type of loan offered by smaller institutions and credit unions. Credit-builder loans essentially lock your money in a bank account while you make monthly payments. Once you’ve paid back the loan, you can access your funds.

This demonstrates that you can make consistent monthly payments and protects the lender. 

Just make sure you read over the terms. Some credit-builder loans only report to one bureau. You should always look for ones that will report to all three bureaus to get the most out of your activity.

Get a Bill Reporting Service

The reward for paying your bills is generally just a pat on the back. You’ve afforded your living costs and you continue to use those services. 

But there are ways to leverage your bills to work on your credit. 

Third-party bill reporting services can help you report rent or utility payments to credit bureaus. This demonstrates that you are mindful about paying back bills on time. 

With all this in mind, remember that you’ll be paying for a service. Consider how much this will cost you and whether or not you have space in your budget. Carefully review the terms of service to ensure they work in your favor. You may even wish to self-report! 

Get a Student Credit Card

The bulk of credit cards are difficult to apply for because of their strict standards. 

Fortunately, there are cards built for those in their teen years: student credit cards. 

Student credit cards are designed for students with no credit history. There are advantages and disadvantages to this. Often, the credit limits are much lower. However, you can benefit from perks like cashback. 

Some will even raise your credit limit over time so that you’re able to spend more. If you’re attending college in the near future, consider a student credit card to build credit. 

4 Habits to Build Good Credit

Having the tools isn’t enough. You need to make sure that you’re engaging in the right habits to build and maintain good credit. 

Here are four habits you need to follow to build good credit. 

1. Always Pay Your Bills on Time

Your payment history is worth 35% of your FICO Score. This has the greatest impact on your credit score.

Learning how to build credit as a teenager starts with paying your bills on time. 

Delinquency isn’t just harmful to your credit score. It can also result in late fees and higher interest rates. If you’re not careful, it can snowball. This means ending up with even more debt you’re not capable of managing. 

Spend only what you’re able to pay back, and always pay your bills on time. 

2. Maintain a Low Credit Card Utilization

Every credit card comes with a credit limit. However, you should never be using every available dollar. Instead, you need to focus on having low credit card utilization. 

Amounts owed or credit utilization is worth 30% of your credit score. So it’s important to use this correctly.

The most you should be using is 30% of your credit at any given time. However, going below this can have a greater positive impact on your credit (10%). Just make sure that you’re not avoiding using credit entirely as this won’t benefit you. 

So, for example, if you have a credit limit of $1,000, try to stick below $300 or $100. As your credit limit rises, you can adjust as needed. 

3. Use Credit Cards Only To Buy Things That You Can Afford

Some see credit cards as a means to afford things they normally couldn’t buy. This can be a grave mistake. 

Even though credit cards do allow you to make purchases, you should be spending mindfully. 

Ask yourself, could I use my debit card for this? Would I have enough money next month to be able to pay for this? If the answer to these questions is no, using your credit card for them is a bad idea. 

Only spend within or below your means so you don’t fall behind on bills while building your credit.

4. Monitor Your Credit History

You should be checking your credit score and credit history regularly. You can access your credit report for free once a year.

Numerous problems could develop and negatively impact your score. For example, someone could potentially open up an account in your name. 

On the less malicious end of the spectrum, something might be misreported. This could impact your credit score without you having done anything bad. Keep all this in mind as you build your credit. 

Building credit as soon as possible can set you up for success earlier. Starting out as a teen is a good place to begin.

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