How to Build Credit Early

Katie DuncanNovember 4, 2022


Child holding credit card

As a young adult faced with school, work, and other responsibilities, it can be easy to underestimate the importance of establishing your credit history early in life. Maybe you’ve heard that your credit history only matters when you’re buying a house— and that’s years down the road, right? Or maybe someone has told you to “stay away” from credit cards at all cost.

The reality is that your credit history is part of your financial wellbeing, and it comes into play in more ways than you may think—way before it’s time to buy a house. If you use credit cards and loans wisely, they don’t have to be a scary or dangerous thing.

Your credit is a tool, and it’s never too early to start building your score. Here’s why it’s a good idea to get a head start on your credit and how to do it.

Why is it important to build credit young?

One of the best things you can do for your financial future is to build your credit before you need it. A good credit score takes time, and can improve your qualification odds, help you get better interest rates, and generally improve your financial picture.

Good credit doesn’t happen overnight. It can take months, or even years, to establish a solid credit history and shape a great score. Even if you are not ready for a big purchase like a home or car just yet, building your credit now will help you qualify for major purchases like this down the road.

Having good credit isn’t just for the big stuff. It’s common to have your score or history pulled for events like:

  • Applying for credit, such as a credit card or retail card: A solid credit history will qualify you for the best credit cards, meaning you can take advantage of better rewards and perks.
  • Getting a job: Employers are legally allowed to check your credit history and may use it as a deciding factor in whether or not to hire you.
  • Renting an apartment or house: Property managers want to know if you are likely to pay rent on time. A good credit history shows that you are a trustworthy renter and have a history of paying your bills.

Regardless of who is looking at your score, having years of on-time payments and a healthy credit utilization rate shows that you are a responsible borrower.

When should you start building credit?

While it’s never too late to start building good credit, the earlier you start, the better. This is because one of the factors that contribute to your credit score is the length of credit history. The longer you’ve had credit, the better.

You may be able to start building your credit as early as age 13 by becoming an authorized user on a parent’s credit card. Otherwise, the real credit building starts at 18— the age at which you become eligible for credit cards, loans, and other forms of credit.

How to Build Credit Early

Here are six ways to get a head start building your credit.

1. Become an authorized user on a credit card.

Anyone can become an authorized user on a credit card, and it’s especially helpful for those just starting out.

To become an authorized user, you do not need to have good credit— or any credit at all, for that matter. All you need is someone who is willing to add you to their credit card account as an authorized user.

As an authorized user, you will have access to the credit card and will be able to use it like any other credit card holder. However, you will not be held responsible for any of the charges made on the card—by the credit company, at least. The primary cardholder will be responsible for paying the bill each month. It’s up to you and the primary cardholder to work out how payments will be made.

Pro tip: make sure that you trust the primary cardholder to make timely payments and to keep the balance in check. If the primary cardholder does not make timely payments or runs up a high balance, it will negatively impact your credit score.

2. Open your own credit card.

Once you’ve outgrown being an authorized user, the next step is to open your own credit card. This can show lenders that you’re responsible with borrowing and repayment, and can help you establish a strong credit history.

If you’re concerned about opening a line of credit for the first time, consider secured credit cards. These types of cards require a deposit, which serves as collateral in case you can’t make your payments. They are also much easier to qualify for since there is virtually no risk for creditors.

As long as you use credit cards responsibly, they can be an excellent tool for building your credit. With time and good financial habits, you can watch your credit score climb— giving you more options for loans, lines of credit, and favorable interest rates down the road.

3. Get your on-time rent payments and utility bills reported.

Another way to build credit early is to get your rent payments and utility bills reported to the credit bureaus.

Typically, these types of payments aren’t reported automatically. You can have it done, however, by asking your landlord or utility company to report your payments to the credit bureaus or signing up for bill reporting directly through a credit bureau.

4. Take out a credit builder loan.

Some financial institutions offer what is known as a credit builder loan.

These are what the name sounds like— a type of loan designed specifically to help build credit.

With a credit builder loan, the lender then holds onto the money you borrowed for the duration of the loan term instead of getting the money upfront. Once you make all of your payments on time, the money is released to you and the lender reports the loan to the credit bureaus.

Credit builder loans can be a great way to build credit early, but it’s important to make sure you’re able to repay the loan before taking one out.

5. Treat your credit responsibly.

The most important thing you can do is to make all of your payments on time. This includes not only your credit card bills, but also any other kind of loan you may have, such as a student loan or car loan. Payment history is one of the biggest factors in your credit score, so it’s important to make sure you’re always paying on time. The most financially responsible way to use your cards is to pay off the entire balance every month—this prevents you from paying any interest as well.

Another thing to keep in mind is your credit utilization ratio. This is the percentage of your available credit that you’re using at any given time. It’s a good idea to keep this number low— generally below 30%— so that lenders see that you’re not maxing out your credit lines.

6. Add different types of credit as you go.

While this isn’t necessarily a beginner’s tip, it is important for your overall credit journey. As you build your credit history, consider adding different types of loans to your history— not just credit cards, but also long term loans. Lenders like to see a mix of 2-3 revolving accounts, along with 2-3 fixed payment accounts.

What we don’t suggest is taking out loans just because you can. Instead, carefully build your credit using the tools that you actually need.

What does this look like in real life? Borrow money when you need it, at a decent interest rate, when you know can pay it back. For instance, if you need a car and you can get a low APR on an auto loan and you can afford the monthly payment, that loan is beneficial to your overall credit history. But if the interest rate is 27% and you can’t afford the payments, this loan is not going to help your credit! Instead, if you fail to make payments, it’s going to lower your credit score.

The more types of loans you have, the better your credit mix, and the more positive your history. All of that translates to better interest rates and benefits down the road, like a great interest rate on your mortgage or a lower credit card APR.

Pro tip: A mortgage loan can have a very positive impact on your credit score, after six months of regular payments (and in most cases). So enjoy that moment when it comes!

Get Started on Better Credit

Building credit takes time and patience, but it’s worth it in the long run. Take advantage of these six tips to prepare for your financial future.

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Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.