How to Start Building Credit as a Minor
Learn how to responsibly start building your credit history as a minor for a strong financial future.
Establishing a credit history is a long-term financial endeavor, especially for young individuals. Understanding how credit operates from an early age provides a significant advantage for future financial stability. For those under 18, specific legal requirements govern financial agreements. Building credit takes consistent effort, and a foundational understanding of its mechanisms is beneficial.
Understanding Age and Credit Eligibility
Entering financial contracts, such as applying for a credit card, requires contractual capacity. This legal principle dictates a person must be of a certain age to be held responsible for an agreement’s terms. In the United States, the legal age of majority is 18, which directly impacts a minor’s ability to independently obtain credit products.
Most credit card companies and lenders require applicants to be at least 18 to open an account in their own name. This age requirement stems from contractual responsibility, ensuring individuals can understand and fulfill their obligations. While those aged 18 to 20 can apply, federal law often requires them to demonstrate sufficient independent income or have a co-signer, though co-signers are less commonly accepted by major issuers today.
Becoming an Authorized User
Becoming an authorized user on an existing credit account is a practical method for a minor to begin establishing credit history. An authorized user can use the primary account holder’s credit card but is not legally responsible for the debt. The primary account holder maintains full responsibility for all charges and payments.
To add a minor as an authorized user, the primary account holder provides specific information, usually their full name, date of birth, and Social Security Number. While authorized user activity can be reported to credit bureaus, reporting is not guaranteed by all lenders. Therefore, the primary account holder should confirm with the credit card issuer whether they report authorized user activity.
The primary account holder can add a minor as an authorized user by contacting the credit card issuer directly, often through an online portal, phone, or mail. After the minor is added, they may receive a physical card. Credit reporting for the minor can then begin if the issuer reports this activity. Some issuers have a minimum age requirement for authorized users, with some allowing individuals as young as 13.
Independent Credit Building Approaches
Once an individual reaches the age of majority, 18, they can pursue independent credit-building strategies. A common starting point is a secured credit card, which requires a cash deposit as collateral, usually equal to the credit limit. This deposit mitigates risk for the lender, making these cards accessible for individuals with limited or no credit history. Responsible use, including on-time payments and low balances, is reported to the three major credit bureaus.
Student loans can also contribute to an individual’s credit history once they are independently responsible for them. Both federal and private student loan payments are reported to credit bureaus. Consistent, on-time payments demonstrate responsible financial behavior and enhance a credit profile. Federal student loans do not require a credit check, except for Direct PLUS Loans, while private student loans often do.
Beyond secured credit cards and student loans, other entry-level credit products are available. These include retail store cards, which have more lenient approval requirements, or small personal loans from local banks or credit unions. When managed responsibly with timely payments, these products contribute to building a credit file and establishing financial reliability.
Monitoring Credit Progress
Tracking and understanding reported credit activity is important for financial management. A credit report summarizes an individual’s credit history, compiled by credit reporting agencies. The three major nationwide credit bureaus are Equifax, Experian, and TransUnion.
Individuals are entitled to a free copy of their credit report from each of these three bureaus, accessible weekly through AnnualCreditReport.com.
A credit report contains information relevant to credit building, including identifying details like name, address, and Social Security Number. It also includes account history detailing credit limits, loan amounts, account balances, and payment statuses, plus inquiries made by potential lenders.
A credit score is a numerical representation of creditworthiness, ranging from 300 to 850. This score is derived from the credit report and used by lenders to assess timely loan repayment. Regularly reviewing credit reports ensures accuracy and helps identify discrepancies or errors that could impact one’s credit standing.