Let’s say you feel ready to handle the responsibility of credit and all that entails. How do you get started?
Before we even get into that, let’s take a moment to revisit the main take-away from our last post [Credit: what is it and why should you care?] Let’s say it all together now: No credit is better than bad credit!
Yes, we are starting with the warning mentioned in the title. That is because it is so important!
Demonstrating that you are responsible with your finances is key to qualifying for a loan or credit card… but how can you prove that you are financially responsible with credit when you don’t yet qualify for the very things that help you build that credit?
Baby Step #1: Open a bank account in your name, if you don’t already have one. Try your best to deposit on a consistent basis. Even if it is only a few dollars a month. It all ads up, and a history of deposits looks good even if they are small.
Baby Step #2 Apply for a secured credit card. You use it like a regular credit card, but the spending limit must be backed by a deposit. (Your spending limit is typically dictated by the amount of your deposit.) You can use the card to pay bills or make purchases, and you will be responsible for paying off your balance just as you would with a regular credit card. Another option is to become an authorized on someone else’s credit card. This means that the other person will need to be able to trust you! (A typical scenario is for a parent to add their child as an authorized user on their card.) They will be held responsible personally for any bad decisions made with the card, so you will be expected to be on your best behavior! On the flip side, your name can benefit from the correct usage of that card.
Looking for more baby steps/ways to get started on building your credit? There are several other valid options, each of which have their own set of pros and cons. Nerdwallet.com may be helpful to you as you navigate the world of finances and learn what will work best for you. This page on their website offers several more options for building credit from scratch: https://www.nerdwallet.com/blog/finance/how-to-build-credit/
Ultimately, your level of responsibility will determine how well they work for you.
What is a good target age for establishing credit?
The decision to use credit or not and when to begin establishing that credit is a subjective one. Every person has different goals and varying degrees of responsibility.
That being said, you will need to be 18 years of age or order to apply for most credit cards, but can open a bank account when you are much younger (sometimes as young as age 13).
Warning: Building good credit is fairly easily done, and can be accomplished in just a few months. Bad credit can haunt you for hears. It is not a bad idea to work toward building good credit while still in high school. However, your self-control plays a significant role in the success of this plan. Some students are better off waiting. Be honest with yourself and seek advice. Make sure that the temptation to spend is something you can handle.