How to build credit at a young age

Building credit at 18 is an essential part of adulthood. These seven tips will guide you through how to start building credit at 18. 

1. Understand the basics of credit 

Before you do anything else, you should understand the basics of how credit works. 

Your credit report is maintained by the three major credit reporting bureaus: Experian®, Equifax® and TransUnion®. Each bureau may generate separate reports. What's contained in that report determines your credit score. This is calculated using credit score models like VantageScore 3.0®, which is available in Chase Credit Journey, and FICO®. 

The six key factors that make up your VantageScore 3.0® credit score are:

• Payment history 
• Credit history 
• Credit usage 
• Total balances 
• Recent credit 
• Available credit

The five key factors that make up your FICO® credit score are: 

• Payment history 
• Credit utilization 
• Length of credit history 
• New credit 
• Credit mix

Depending on your future behavior, all of the above can affect your credit score. 

The major credit reporting bureaus are required to supply you with your free credit report once a year. Future lenders will use your credit report and score to determine your interest rate on both credit cards and loans. A good score will likely land you a lower interest rate while a poor score will likely mean a higher interest rate.

2. Become an authorized user 

Do you have a family member or friend who has a strong credit score and is willing to add you as an authorized user? An authorized user is someone that's permitted to use another person's credit card. This can help you start to build credit activity. 

Even if your card is dormant, their activity — assuming in good standing — could benefit your credit score. If you or the primary cardmember rack up too much debt, you could both be negatively impacted. 

Before becoming an authorized user, make sure that the credit card company reports activity for authorized users. Otherwise, you won't build your credit. 

3. Get a starter credit card 

Credit cards are a great tool to start building credit. If you don't have a credit history, you may have trouble qualifying for certain cards. If you're a student, consider a student credit card. 

You can also establish a credit history with a secured credit card . A secured credit card requires a security deposit or collateral. The cash deposit — typically $200-$500 — becomes your credit line. Secured credit cards aren't offered by Chase, but it's similar to a traditional credit card. They charge late fees in cases of missed payments and may have high interest rates as well as annual fees. 

4. Build credit by making payments on time 

Payment history is a very important factor in your credit score, so making payments on time is one of the best things you can do to build credit. 

Making timely payments goes beyond your credit card balance. You want to make timely payments on all your bills — car loans, student loans etc. — to establish good credit. Late or missed payments can take a toll on your credit score. 

One way to make sure you don't miss a payment is to enroll in autopay. 

5. Keep your balance low 

An important factor in your credit score is your credit utilization ratio. Your credit utilization ratio, or the amount you owe compared with your credit limit, makes up a portion of your credit score. 

Experts suggest keeping your credit utilization ratio below 30 percent. Generally, you should try to keep that figure much lower, closer to 10 percent. 

The best thing to do is completely pay off your balance each month. This way you'll avoid paying interest and keep your utilization down. 

6. Take out a student loan 

Taking out a loan for the sole purpose of building credit can be beneficial. While Chase doesn't offer student loans, this type of loan may be needed to help you pay for college. 

All types of student loans — federal, private and refinance — will show up on your credit report. Loans will start counting toward your credit score when you start making payments. 

7. Keep tabs on your credit report and score 

Once you start building credit, you need to make sure everything is in order. You can access your credit score for free by using Chase Credit Journey. Make sure there are no inaccuracies. If you see an error, report the mistake to the major credit reporting bureaus.

With the right guidance, teenagers can develop a strong financial foundation that can help them establish credit

May 10, 2022 |5 min read

You’ve worked hard to create a loving family environment and to share important life lessons with your kids. And learning how to manage money and credit can be part of those lessons. The Federal Trade Commission says kids who understand money better tend to have better credit scores as adults. 

The knowledge you share with your kids might help them get a head start on building credit. That could make it easier for them to qualify for a credit account or rent an apartment on their own when they’re older. Read on for some ideas on how you can help your teenager learn about and start their credit journey.

1. Educate Your Teenager on the Basics of Credit

You know your teen best. So you can decide which money topics will be appropriate for them based on their age, interests and development. But here are some ideas: 

• The potential benefits of having a good credit score for everything from getting a phone plan to being approved for a credit card.  
• The importance of using credit responsibly. 
• The differences between credit cards and debit cards.
• The benefits of creating a budget.
• The importance of keeping personal information private and secure.  

2. Check Their Credit Reports

Be sure your teen is starting with a clean slate by checking their credit reports. Even if your teen can’t get credit on their own, there are still ways they could already have a credit report, including by error or because of identity theft. And that could lead to headaches once it’s time for your teen to open accounts of their own.

You can contact the three main credit bureaus—Equifax®, Experian® and TransUnion®—to check your child’s credit and dispute any errors. And according to Experian, they can check themselves once they turn 14. 

3. Open Checking and Savings Accounts in Your Teen’s Name

Some people keep their spending money in a checking account and short-term savings in a savings account. Learning how to use and manage both accounts might teach your teens skills that could apply to managing a credit card. 

Once you think they’re ready, you may be able to open a bank account for your teen. As the joint owner, you can help monitor and manage the account. But you can make sure they’re able to have some control and get practice as well. 

The Capital One MONEY teen checking account is an option for parents or legal guardians and a child who is at least eight years old. The account comes with a debit card that they can use, and there are no minimums or fees. It also includes tech tools to encourage them to start budgeting and setting goals—and to give parents access and oversight. 

If you have younger children, you don’t need to wait. You can start them with a Capital One Kids Savings Account and then move them to the teen checking account later. 

4. Add Your Teen as an Authorized User

You may be able to help your teen build their credit before they’re 18 by adding them as an authorized user on your credit cards. That’s if the card issuer reports information to the credit bureaus and the credit bureaus include that information on credit reports. If information doesn’t appear in a credit report, it may not affect an authorized user’s credit or credit score at all.

Responsible use could help your teen establish and build their credit history and contribute positively to yours. Negative actions, like missed payments, could hurt both of you.  

When you add a teen as an authorized user on your Capital One card, you can track their spending and receive real-time alerts with the Capital One mobile app.* Removing an authorized user is just as easy. 

5. Research Opening Student or Secured Cards

If you think your teen is ready to use credit, there are some options you can both consider. Kids typically have to be at least 18 years old to open a credit card in their own name. If they’re under 21, they’ll also have to prove they can independently make the minimum payments on the account. If they can’t, they may need a co-signer, guarantor or joint applicant who is at least 21 and has the ability to make required minimum payments on the account.

Many teens start with a student credit card. A secured credit card could also be a good option. 

6. Lead by Example

Teens can learn a lot from watching how you manage your finances and credit. You might want to make a point of sharing why you’re considering using one credit card over another. Or show your teen what a credit card bill looks like and how the payment impacts your household’s finances. 

You can also share stories of mistakes you or your friends made during your teens and what you learned. It might not stop them from making their own mistakes. But hopefully, they won’t repeat the same ones, and it might help them feel comfortable coming to you for advice. 

Discuss the Benefits of Good Credit 

Credit can seem abstract for teens when they can’t get accounts of their own. But it might help if you can share the importance of credit to your teen’s specific goals. Perhaps your teen would like to buy a car. In this case, you can explain how good credit can help you qualify for a car loan. 

It’s one thing to build and establish credit, but remember to emphasize to your teen that that’s only the first step. Maintaining good credit requires responsibly managing credit cards and other financial accounts. It can take time, and it’s an ongoing process. But learning early might help them reach so many future milestones.

*Web access is needed to use the mobile app. Check with your service provider for details on specific fees and charges.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

Capital One does not provide, endorse or guarantee any third-party product, service, information, or recommendation listed above. The third parties listed are solely responsible for their products and services, and all trademarks listed are the property of their respective owners.

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