How to Build Credit When You’re Under 18

For young individuals, credit is a gateway to significant life milestones, such as securing housing, obtaining vehicle loans, or qualifying for competitive insurance rates. Building credit for those under 18 requires a strategic approach, often involving parental support and specific financial products.

Foundations of Credit for Young People

A credit score is a numerical representation of an individual’s creditworthiness, reflecting their history of managing debt. Lenders, landlords, and some employers use this score to assess financial responsibility. A higher score indicates lower risk, leading to better terms on loans and other financial products. Establishing a positive credit history early can unlock future financial opportunities.

Federal regulations, such as the Credit Card Accountability Responsibility and Disclosure Act of 2009, prohibit individuals under 21 from opening a credit card account independently unless they can demonstrate independent means to repay debt or have a co-signer. Building credit for those under 18 necessitates involvement from a parent or legal guardian. The focus shifts to indirect methods or specific financial instruments that accommodate age limitations, allowing a minor to benefit from a responsible credit history without directly holding the primary legal obligation.

Becoming an Authorized User on a Parent’s Account

One effective method for a minor to build credit is by becoming an authorized user on a parent’s existing credit card account. The minor receives a card linked to the parent’s account but is not legally responsible for the debt. The parent’s responsible payment history and credit utilization can positively reflect on the authorized user’s credit report. Parents should have a history of on-time payments and maintain low credit utilization, as these factors directly influence the authorized user’s reported credit data.

Adding a minor as an authorized user is done by contacting the credit card issuer. Most major credit card companies allow this, often requiring the minor’s name and Social Security Number (SSN) for reporting. The issuer typically sends a card with the minor’s name, allowing them to learn about credit card usage under supervised conditions.

Once added, the parent remains solely responsible for all charges, including those by the authorized user. Parents and minors should establish clear agreements regarding spending limits and repayment expectations. Account activity, including payment history and outstanding balances, will be reported to major credit bureaus for both the primary cardholder and the authorized user, accumulating positive data if managed responsibly.

Applying for a Secured Credit Card

A secured credit card offers another pathway for individuals with no credit history, including minors with parental support, to establish credit. Unlike traditional credit cards, a secured card requires a cash deposit that serves as the credit limit. For instance, a $200 deposit usually results in a $200 credit limit. This deposit minimizes lender risk, making these cards more accessible to those without established credit.

For a minor, a parent or guardian often provides the security deposit and assists with the application. While a minor cannot apply independently, some financial institutions may allow a parent to open the secured card in their name and then add the minor as an authorized user, or co-sign if allowed. The card’s purpose is to report payment activity to the major credit bureaus.

Consistent on-time payments and low credit utilization demonstrate financial responsibility and contribute to building a positive credit score. To apply, research banks and credit unions offering secured credit cards and review their requirements. The application involves providing personal information and making the security deposit. Once issued, using the card responsibly by making small purchases and paying the balance in full and on time each month is important, as this activity is reported to credit reporting agencies.

Leveraging Other Financial Activities

While not directly building credit like authorized user accounts or secured cards, certain financial activities can indirectly contribute to future creditworthiness and establish good financial habits. Consistently paying bills like phone plans, streaming services, or rent (if applicable) demonstrates reliability. Although these payments are not typically reported to major credit bureaus for minors, they instill discipline in managing financial obligations.

This practice builds a foundation of financial responsibility valuable when they are old enough to apply for credit independently. Some specialized services allow reporting of rent or utility payments to credit bureaus, but these are not universally adopted and usually require the account to be in the individual’s name, which is not possible for minors.

These activities do not typically generate a credit score for minors in the traditional sense. Their value lies in fostering financial literacy and responsible financial behavior, preparing young individuals for direct credit-building methods as they approach adulthood.