How Can I Build My Credit at 17?

Credit represents a borrower’s ability to obtain goods or services before payment, based on the trust that payment will be made in the future. Establishing a good credit history is important for various financial milestones. A strong credit profile can make it easier to secure an apartment lease, finance a car, or qualify for a home mortgage. It demonstrates financial reliability to potential lenders and service providers.

Credit Eligibility for Minors

Individuals under 18 generally face legal limitations when obtaining credit independently. Minors typically cannot enter into legally binding credit contracts. This restriction protects young individuals from financial obligations they may not fully understand or be prepared to manage.

The CARD Act significantly impacts credit card access for those under 21. This federal law prohibits credit card issuers from granting new accounts to anyone under 21 unless they have a co-signer who is 21 or older, or can demonstrate sufficient independent income to afford the credit card payments.

Building Credit Through Parental Support

One effective method for a 17-year-old to begin building credit involves becoming an authorized user on a parent’s credit card. An authorized user receives a card linked to the primary account, allowing them to make purchases. The primary cardholder remains solely responsible for all payments made on the account.

This arrangement can benefit the authorized user’s credit report, as the primary account holder’s positive payment history may be reflected on the minor’s credit file. However, it is important to confirm with the credit card issuer whether they report authorized user activity to the three major credit bureaus: Equifax, Experian, and TransUnion. Not all issuers report this information, or they may have age restrictions for reporting.

Open communication between the parent and child regarding responsible card use is important. The authorized user should understand that any missed payments or high balances on the account could negatively impact both the parent’s and their own credit. A parent might co-sign a loan for a minor, such as a student loan. Co-signing carries significant risks for the parent, as they become equally responsible for the debt, and any missed payments by the primary borrower will negatively affect the co-signer’s credit report.

Preparing for Independent Credit

Before obtaining independent credit, a 17-year-old can develop financial habits and knowledge that lay a strong foundation. Understanding personal finance basics is an important step. This includes learning about budgeting, which involves tracking income and expenses to manage money effectively.

Saving money regularly helps build financial discipline. Comprehending the concept of interest, both as a cost of borrowing and a return on savings, is also valuable. While opening a checking or savings account does not directly build a credit score, it provides a practical way to manage money responsibly and prepare for future financial obligations. These actions cultivate responsible financial behavior, which will be beneficial when independent credit becomes an option.

Establishing Credit at 18 and Beyond

Upon reaching age 18, individuals can legally enter into credit agreements, opening new avenues for establishing their own credit history. Student credit cards are often a suitable option for those enrolled in college, as they are designed for young adults with limited or no credit history. These cards may have lower credit limits but allow for the consistent reporting of payment activity.

Secured credit cards are another common starting point, particularly for individuals without a credit history or those looking to rebuild credit. With a secured card, a cash deposit, typically equal to the credit limit, is provided to the issuer as collateral. This deposit reduces the risk for the lender, making them easier to qualify for. Responsible use, including on-time payments, can lead to the card graduating to an unsecured card and the deposit being returned.

Credit-builder loans offer an alternative approach where the loan amount is held by the lender in a savings account or Certificate of Deposit (CD) while the borrower makes regular payments. Payments are reported to credit bureaus, and the full loan amount is released to the borrower once the loan is repaid. When applying for any of these products, it is important to start with a modest credit limit and consistently make all payments on time. Some regular bill payments, like utilities or rent, may also be reported to credit bureaus, contributing to a credit history, though this practice is less universal than with traditional credit products.

Monitoring and Maintaining Your Credit

Ongoing management and understanding of one’s credit are important for long-term financial health. Individuals are entitled to access their credit reports weekly for free from each of the three major credit bureaus: Equifax, Experian, and TransUnion. These reports can be obtained through AnnualCreditReport.com. Regularly checking these reports helps ensure accuracy and identify any potential errors or fraudulent activity.

Credit scores, such as FICO and VantageScore, are numerical summaries of the information in credit reports, used by lenders to assess creditworthiness. Key factors influencing these scores include payment history, which is the most significant component, and credit utilization, or the amount of credit used compared to the total available. Other factors include the length of credit history, the types of credit accounts maintained, and new credit applications. Responsible credit management involves always paying bills on time, keeping credit utilization low (generally below 30% of the available limit), and avoiding opening too many new accounts simultaneously.