How to Build Credit Before 18

Building a strong financial foundation often begins with establishing a positive credit history, a record of how an individual manages borrowed money. This history is crucial for various future financial activities, including securing loans for education, vehicles, or housing, and even for some employment opportunities. Establishing credit can present a unique challenge for individuals under the age of 18, as legal restrictions generally prevent minors from entering into binding financial contracts. This article explores the fundamentals of credit and outlines strategies for young individuals to begin building a credit profile before reaching adulthood.

Understanding Credit Basics

A credit score is a three-digit number representing an individual’s creditworthiness. Lenders widely use two primary scoring models, FICO Score and VantageScore, to assess risk. These scores are derived from information in an individual’s credit report, a summary of their credit history.

A credit report compiles information about an individual’s past and current credit accounts, including credit cards, loans, and payment history. These reports are maintained by the three major credit bureaus: Experian, Equifax, and TransUnion. Lenders review these reports to evaluate an applicant’s financial behavior and capacity to handle new credit obligations.

Several factors significantly influence both FICO Scores and VantageScores. Payment history, accounting for approximately 35% of a FICO Score, is the most impactful factor. The amounts owed, or credit utilization, represents about 30% of a FICO Score, measuring the percentage of available credit being used.

The length of credit history, contributing around 15% to a FICO Score, considers how long credit accounts have been open and their average age. New credit makes up approximately 10%. Finally, the credit mix, accounting for about 10% of a FICO Score, reflects the variety of credit accounts, such as installment loans and revolving credit.

Strategies for Building Credit as a Minor

A practical method for a minor to establish credit history is becoming an authorized user on a parent’s or guardian’s credit card account. When a minor is added as an authorized user, the primary account holder grants them permission to use the card, though the primary holder remains legally responsible for all charges. The credit activity, including payment history and credit limits, typically gets reported to the credit bureaus for the authorized user.

This reporting helps the minor build a credit file, provided the primary account holder maintains positive payment history and low credit utilization. Before adding a minor, parents should confirm with their credit card issuer if authorized user activity is reported to the major credit bureaus. Some issuers do not report this, negating the credit-building benefit.

Another indirect strategy involves encouraging parents or guardians to utilize services that report regular payments, such as rent or utility bills, to credit bureaus. Specialized services allow landlords or utility companies to report on-time payments. These services often involve a subscription fee and require the landlord or utility provider to participate or verify payments.

A secured credit card can be an option if a parent or guardian obtains one in their own name and allows the minor to use it under strict supervision. A secured card requires an upfront cash deposit, which often serves as the credit limit. The parent owns the account and is responsible for payments, but the minor’s supervised usage teaches valuable financial habits.

Managing Credit Responsibly After Age 18

Upon reaching 18, individuals can leverage the foundation laid as a minor. A common first step is applying for a credit card, such as a student or secured card. Student credit cards are designed for young adults with limited credit history, often with lower limits or requiring a co-signer.

If approved for a credit card, consistently making on-time payments is paramount, as payment history is the most significant factor. It is also important to keep credit utilization low, ideally below 30% of the available credit limit. For example, if a card has a $500 limit, maintaining a balance below $150 is beneficial.

Beyond credit cards, other financial obligations can contribute positively to a credit history. Responsibly managing student loans, by making timely payments, builds a strong record of repayment. Similarly, an auto loan, when managed with timely payments, can diversify a credit mix and enhance a credit report. Handled with discipline, these products reinforce reliable financial behavior attractive to future lenders.