Starting your credit-building journey early can help secure your financial future and set you up for increased opportunities, such as accessing lower interest rates and better benefits on different credit products. But how do you start building credit as a youth, teen, or young adult?
Comparing different strategies, such as using credit-building credit cards, can help you determine which ones make the most sense as you work to build and maintain a good credit score.
A secured credit card looks and functions like a normal credit card, but you have to put down a cash deposit that typically acts as your credit limit. For example, you might put down $500 as your security deposit, and then you would have a $500 credit limit.
Using a secured card can raise your credit score if done responsibly. That means using it to make purchases and then paying off the credit card balance in full and on time. Secured credit cards tend to have less strict eligibility requirements, making them more appealing if you’re building or rebuilding your credit and can’t qualify for an unsecured card.
Related: Secured vs. unsecured credit cards: What’s the difference?
Two top secured credit cards include the Capital One Quicksilver Secured Cash Rewards Credit Card and the Capital One Platinum Secured Credit Card. If you want to earn rewards while building your credit, the Capital One Quicksilver Secured Cash Rewards is the better choice.
Student credit cards are specifically designed for college students who want to build their credit history. Since students tend to have little or no credit history and want to open their first credit card, these cards don’t have as strict eligibility requirements as many non-student cards. Most student cards are only available to actively enrolled and eligible college, university, or trade school students.
Student credit cards work the same as traditional cards, allowing you to make purchases on a line of credit and help build and establish a positive credit history. Some student cards provide useful benefits, such as earning cash back or receiving protections on eligible new purchases.
Two of the top student credit cards include the Capital One Savor Student Cash Rewards Credit Card and Discover it® Student Cash Back. They both offer cash-back rewards, giving students the opportunity to earn rewards and build credit at the same time.
An authorized user is someone added to another person’s credit card account. For example, a parent might add their child to their credit card for multiple reasons:
To give their child access to funds
To teach their child how to use a credit card and learn good financial habits
To help build their child’s credit history
The primary account owner can decide whether they even want the authorized user to have access to the account. So, a parent could add their child and not give them their own credit card or let them use the account.
However, the child’s credit history can still benefit from being on the account if the account owner is using it and making on-time payments. This is a great strategy if you’re not sure whether you want to give your child a credit card of their own quite yet, but you also want to help them build their credit history.
Learn more: How to add an authorized user to a credit card
It’s essential to remember that, throughout your credit-building journey, you should always focus on tracking and managing your money responsibly, especially if using credit cards. If you want to increase and maintain your credit score, consider these best practices:
Make on-time payments: Your payment history is one of the most important factors affecting your FICO score, a popular type of credit score. Missing or making late payments can have a huge impact on your score.
Only open what you need: Your length of credit history, or the average age of your credit accounts, affects your credit score. If you open too many new accounts, your average age will drop, along with your credit score.
Keep accounts active: Similarly, closing your oldest accounts can also drop the average age of your accounts. If possible, it’s often best to keep your oldest accounts open and active.
Keep utilization low: Your credit utilization ratio is the percentage of your available credit that you’re using. It’s typically best to keep your credit utilization low so your credit score isn’t impacted.
Related: What is credit mix, and how does it affect your credit score?
It’s possible to have errors on your credit reports. Some errors can impact your credit score, so they should be disputed.
You can check your credit score for free at AnnualCreditReport.com. This is the only federally authorized source for free credit reports. However, you may have access to your credit reports through other means, such as a service from your credit card issuer.
The major credit bureaus, Equifax, Experian, and TransUnion, have easily accessible online processes for disputing errors on your credit report.
Related: 6 benefits of a good credit score
A credit-builder loan can help you build your credit by using a loan rather than a credit card. Similar to a credit card, you make payments, and your lender reports those payments to the credit bureaus.
Just about any type of loan could help you build your credit, including student loans and car loans. As long as you make your payments on time and the lender reports them, you should see your credit score improve over time. You might need a trusted co-signer for a loan if you have no credit history.
Some bill reporting services, such as Experian Boost, could increase your credit score by reporting different bill payments, including your cell phone, utilities, and rent. Experian Boost doesn’t always work, and there’s no specific amount your score could increase, but it’s free and easy to try.
Young adults can build their credit history in multiple ways, including:
Using secured credit cards
Using student credit cards
Becoming authorized users on established credit card accounts
You can work toward achieving an 800 credit score in your 20s by responsibly using different credit products, such as credit cards and loans. This includes making on-time monthly payments, not opening too many accounts, and keeping your oldest accounts active. It’s also important to maintain a low credit utilization ratio across your credit accounts.
One of the safest ways for young people to build credit is to get added as authorized users on established credit card accounts of trusted individuals, such as parents or other family members. Using this strategy, they can build a strong credit history without even having their own credit card. An authorized user can benefit as long as the account owner keeps the account active and makes on-time payments.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to the Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
