How to Start Building Credit in High School

Credit is the ability to borrow money or access goods and services with the understanding that repayment will occur later, often with interest. Building a strong credit history is important for future financial endeavors, including securing an apartment lease, obtaining a car loan, or qualifying for a mortgage. Starting this process in high school can provide a notable advantage for future financial stability.

Securing Your First Credit Product

First credit products often involve options designed for those with limited or no credit history. One common method is becoming an authorized user on a parent’s credit card. An authorized user receives a card linked to the primary account holder’s credit line. The account’s payment history can appear on their credit report, helping to establish their own credit history. This arrangement can be beneficial if the primary cardholder maintains a responsible payment history and low credit utilization, as positive habits reflect favorably on the authorized user’s credit profile. However, mismanagement, such as late payments or high balances, could negatively impact the authorized user’s credit.

Another accessible option is a secured credit card, which requires a cash deposit as collateral. This deposit matches the credit limit, providing security for the card issuer. Secured cards function like traditional credit cards, allowing purchases up to the deposited amount. On-time payments are reported to credit bureaus, helping to build a positive payment history. When managed responsibly, a secured card can serve as a stepping stone to an unsecured credit card. The deposit is refundable upon closing the account, provided the balance is paid in full.

Credit-builder loans offer another path to establish credit. With this loan, the money borrowed is held in a savings account or certificate of deposit by the lender, rather than being disbursed upfront. The borrower makes regular payments over a set period. Once fully repaid, the funds are released. This demonstrates consistent on-time payments, a significant factor in building credit history.

Effective Management of Your Credit

Effective management is important for building a strong credit profile once a credit product is established. Making consistent on-time payments is essential, as payment history is the most significant factor influencing credit scores, often accounting for a large portion. Missing payments, even by a single day, negatively impact credit scores and remain on a credit report for an extended period. Establishing automatic payments helps ensure bills are paid by their due dates, preventing accidental oversights.

Maintaining a low credit utilization ratio plays a significant role in credit scoring. Credit utilization refers to the amount of revolving credit used compared to total available credit. Keep this ratio below 30%, and ideally lower, as a higher ratio signals increased risk to lenders and may lower credit scores. For example, on a $1,000 credit card limit, keeping the balance below $300 is beneficial. Regularly paying down balances before the statement closing date helps keep this ratio low, even if the full balance is paid off monthly.

Understanding credit mix and length of credit history is also beneficial, though less impactful in early stages. A diverse mix of credit types, such as revolving credit (like credit cards) and installment credit (like loans), positively influences a credit score over time. The length of credit history, including the age of the oldest account and the average age of all accounts, improves with time as accounts are kept open and managed responsibly.

Leveraging Alternative Data for Credit Building

Beyond traditional credit products, non-traditional methods can help high school students establish or boost their credit history. Rent reporting services allow on-time rent payments to be reported to credit bureaus, beneficial for those who pay rent (e.g., students living off-campus or contributing to family housing expenses). While not all landlords report rent payments directly, third-party services can facilitate this reporting, sometimes for a fee. This provides a significant boost to a credit profile, as rent is often a substantial monthly expense.

Utility bill reporting is another avenue for credit building. Typically, utility companies do not report positive payment history to credit bureaus unless an account becomes delinquent. However, some third-party services and programs allow consumers to opt-in to have on-time payments for utilities like cell phone, internet, electricity, and water reported to credit bureaus. This provides additional data points to demonstrate responsible financial behavior.

Experian Boost allows users to add positive payment history from non-traditional sources, including utility bills, phone bills, and streaming service payments, directly to their Experian credit report. By connecting bank accounts, Experian Boost identifies and incorporates these on-time payments, potentially increasing the Experian FICO Score. This service is free and can be a quick way to improve one’s credit score, especially for those with limited credit files.

Understanding and Monitoring Your Credit Profile

Understanding and regularly monitoring your credit profile is important for building credit. A credit score is a numerical representation (typically 300-850) that assesses an individual’s creditworthiness. Lenders use these scores to evaluate lending risk and determine eligibility for financial products and interest rates. Various scoring models exist, such as FICO and VantageScore, and scores can differ based on the model and credit bureau.

Individuals are entitled to free copies of their credit reports from the three major nationwide credit bureaus: Equifax, Experian, and TransUnion. These reports are accessible weekly at AnnualCreditReport.com. Regularly reviewing these reports is important to check for accuracy and identify any potential errors or fraudulent activity. Discrepancies should be disputed with the credit bureau to ensure the report accurately reflects one’s financial history.

Many credit card companies, banks, and third-party financial apps offer free credit scores, useful for tracking progress. While these scores are often “educational” and may differ from scores lenders use, they provide a good indication of credit health and changes over time. Consistent review of credit reports and scores helps individuals stay informed about their credit standing and address any issues.