How to Build Credit at 19 Years Old

Establishing credit is a fundamental step towards financial independence. For a 19-year-old, a positive credit history is essential for renting an apartment, securing a car loan, or qualifying for certain employment. This process requires consistent, responsible financial behavior.

Understanding Credit Basics

Credit refers to your ability to borrow money or access goods or services with the understanding that you will repay them. A credit score is a numerical representation of your creditworthiness, predicting how likely you are to repay borrowed funds on time. Most lenders use the FICO score, which ranges from 300 to 850, with higher scores indicating lower risk. This score is derived from information in your credit reports, which document your borrowing and repayment activities.

Several factors influence your credit score. Payment history is the most impactful, accounting for approximately 35% of your FICO score. This demonstrates your consistency in making payments by their due dates. The amounts you owe, specifically how much credit you are using compared to your available credit (known as credit utilization), contributes around 30% to your score.

The length of your credit history, including the age of your oldest account and the average age of all accounts, makes up about 15% of your score. New credit, reflecting recent applications for credit, accounts for about 10%. Your credit mix, which indicates the diversity of your credit accounts like credit cards and installment loans, also contributes approximately 10%.

Selecting Initial Credit Options

For individuals with limited or no credit history, several accessible options can help begin the credit-building process.

Secured Credit Cards

Secured credit cards require a cash deposit, typically $200 to $300. This deposit often serves as your credit limit and acts as collateral, reducing the risk for the issuer. Responsible use of a secured card, with payments reported to major credit bureaus, can effectively establish a positive payment history.

Student Credit Cards

Student credit cards are designed for college students and often feature more lenient approval criteria. To qualify, applicants need to be at least 18 years old and provide proof of enrollment. If you are under 21, you will need to demonstrate proof of income, which can include personal earnings, allowances, or certain financial aid. These cards usually come with lower credit limits.

Authorized User Status

Becoming an authorized user on another person’s established credit card account can contribute to building credit. When you are added as an authorized user, the account’s payment history may appear on your credit report, potentially benefiting your credit standing. The primary cardholder must use the account responsibly, making timely payments and keeping balances low, as their habits will directly impact your credit report.

Credit-Builder Loans

Credit-builder loans hold funds in a locked savings account or Certificate of Deposit (CD) while you make regular payments over a set period. Loan amounts often range from $300 to $1,000. These loans are commonly offered by credit unions, community banks, and online lenders. Your on-time payments are reported to the credit bureaus, building a positive payment history. Once the loan is fully repaid, you gain access to the held funds.

Cultivating Positive Credit Habits

Establishing positive credit habits is essential once you have obtained a credit product.

Make On-Time Payments

Making on-time payments is the single most important factor influencing your credit score. Even a single payment 30 days or more past due can negatively impact your credit score and remain on your credit report for up to seven years. Setting up automatic payments or calendar reminders can help ensure bills are paid by their due dates.

Maintain Low Credit Utilization

Maintaining a low credit utilization ratio is another habit. This ratio represents the amount of credit you are currently using compared to your total available credit. It is advisable to keep your credit utilization below 30% to positively influence your score, with lower percentages, such as 10%, being even more beneficial. Maximizing credit card limits can signal higher risk to lenders and negatively affect your score.

Understand Credit Limits and Account Age

Understanding your credit limits and avoiding overextension is also important. Even if you have a low balance, a low credit limit can result in a high utilization ratio. Keeping older credit accounts open can benefit your credit history by contributing to the length of your credit history. Regularly reviewing your credit statements for accuracy and any unfamiliar activity helps protect your financial standing.

Tracking Your Credit Progress

Regularly monitoring your credit health is a proactive step in maintaining a strong financial profile.

Access Your Credit Reports

You are entitled by federal law to obtain a free copy of your credit report once every week from each of the three major nationwide credit bureaus: Equifax, Experian, and TransUnion. These reports can be accessed through AnnualCreditReport.com, the only authorized website for this service.

Your credit report contains detailed information, including identifying details, a comprehensive history of your credit accounts, recent credit inquiries, and any public records such as bankruptcies or collections. Reviewing these reports helps you understand your credit activity and identify potential inaccuracies. While the reports themselves do not include your credit score, many credit card companies and banks offer free access to your credit score. Various online services also provide free credit scores.

Dispute Inaccuracies

If you discover any inaccuracies on your credit report, you have the right to dispute them. The dispute process involves contacting the credit bureau that reported the error, and it is also advisable to contact the company that provided the incorrect information. Submitting disputes in writing, accompanied by supporting documents, is a recommended practice to ensure a clear record of your communication.