Two important things happen when you turn 18: you officially become an adult, and you can finally start thinking about credit.
If you’ve never owned a credit card or taken out a loan before, the prospect of building and monitoring your credit can be a little overwhelming. But don’t worry—18 years old is the perfect age to start learning about credit and take steps that’ll set you on the path toward financial success. And make sure to check out our credit for teens center on Kids’ Money for more credit topics.
Turning 18 Won’t Change Your Credit Score
Contrary to popular belief, turning 18 won’t kickstart or change your credit score in any way. Some people wait until they’re well into adulthood before they even begin building credit (even if this isn’t the best approach).
In reality, your credit score doesn’t just appear the minute you turn 18. If you’ve never had a credit card or financed a purchase, no lenders have reported your information to the credit bureaus.
Because your credit score is based entirely on what’s in your credit report, having no credit file means you also have no credit score. A non-existent credit score is neither good nor bad—it’s merely not there at all.
What Age Can You Start Building Credit?
Technically, you can start building credit at any age—even as a child or teen. However, you won’t be able to open your own credit account as a minor, so you’d need help from a parent.
Most people don’t start building their credit until they officially become adults because you must be at least 18 to get a credit card or loan under your name. Once you turn 18, you can sign your own contracts and be eligible for all types of credit.
Building Credit Before Turning 18
There’s a simple loophole to help you build your credit at 17 or earlier. You can technically have a credit card before turning 18 by becoming an authorized user on an adult’s credit card.
Being an authorized user of someone else’s credit card comes with all the perks of having your own credit card. Some credit card issuers have a minimum age for authorized users, but many don’t have any age restrictions, meaning you could theoretically get a credit card at any age.
Credit card companies often report authorized users’ information to the credit bureaus, which builds up credit.
Most teens who become authorized users are added to a parent’s account. It’s important to have an honest discussion with your parent to clarify the expectations and realities of sharing a line of credit.
Will you be responsible for paying the credit you use? What will your credit limit be? Under what circumstances will you be allowed to use the card? You should ask these questions before becoming a credit card authorized user.
How to Start Building Credit
Now that you’ve turned 18, you can officially start building your credit. There are a few things to remember as you go about this.
1. Learn About Your Credit Score
Before you start building credit, you should understand what your credit score means and what factors and decisions impact it. While improving your credit score is relatively easy, it’s also easy to hurt it.
There are two types of credit scores: FICO and VantageScore credit scores. Although these scores are similar, they may vary because they have slightly different calculation formulas.
FICO:
- Payment History (35%)
- Amounts Owed (30%)
- New Credit (10%)
- Credit Mix (10%)
- Length of Credit History (15%)
- Payment History (41%)
- Credit Utilization (20%)
- Credit Age/Mix (20%)
- New Credit (11%)
- Balance (6%)
- Available Credit (2%)
If you pay your bills on time and use credit responsibly, you’ll be able to keep your credit score up without too much effort.
2. Open Your First Credit Account
If you’re looking to dip your toe into the world of credit, a credit card may be a good place to start. It’s not as much of a financial commitment as a loan, and it’s something that will continue to build up your credit as long as you keep the account open.
There are tons of different credit cards on the market, and making sure you pick the right one is essential. As a new credit builder, your options will likely be limited to credit cards specifically for people with little or no credit history.
There are three types of starter credit cards you can consider:
- Secured credit cards: These cards require a refundable deposit, which ends up being the same amount as the line of credit given to you. The amount you’ll need to put forward for your deposit depends on the credit card company.
- Student credit cards: Much like the name suggests, student credit cards are designed for students and young adults with no credit history. However, they usually offer low credit limits and little to no additional perks.
- Alternative credit cards: This is a general term for credit cards that you can qualify for based on non-credit factors, such as your income and spending habits.
Getting a credit card without already having a credit score can be difficult, and you’ll need to be careful not to get trapped in an account with fees you can’t afford. Before committing, read through the credit card’s terms (including interest rates, annual fees, and late fees).
3. Control Your Spending
Once you turn 18 and can build credit on your own, it’s important to keep track of your spending and credit health to ensure you’re in the best financial situation possible.
Consider downloading your bank’s mobile app so you can monitor your spending regularly. You should also check your credit score monthly through your bank, FICO, or one of the three major credit bureaus.
Important: Don’t Spend More Than 30% of Your Credit Limit
When you get your first line of credit, it’s easy to allow your excitement to carry you away, but remember—just because you have access to credit doesn’t mean you should use it all. A good rule of thumb is to use as little credit as possible and never exceed 30% of your credit limit.
4. Keep On Top of Student Loans
Student loans help diversify your credit, give you an opportunity to make monthly payments, and increase your account age or credit history. However, they can also cause financial problems and make it harder to build credit if your monthly bill is unaffordable.
If you’re struggling to make student loan payments, don’t hesitate to ask for help. Take advantage of income-based repayment plans for federal student loans, and ask your lender about hardship assistance if you have private student loans.
What To Do About Unexplained Credit Activity
It’s possible to have a credit score as a minor, even if you’ve never been an authorized credit card user on a parent’s account. However, having an unexplained credit history at a young age usually means that someone has been using your name to qualify for credit cards or make purchases.
Anyone can be a victim of identity theft, and anyone can commit identity theft (including family members). If you think your identity has been stolen and it’s affecting your credit score, report the fraud to the Federal Trade Commission (FTC) at IdentityTheft.gov.
The Bottom Line
Establishing and building your credit can be exciting and relatively simple. There’s no rush to build up credit the moment you turn 18, but achieving a good credit score early on will open up several doors as you enter adulthood, so why not start young?
Just remember to always use credit responsibly to ensure that you only improve (not hurt) your credit score.
