When you’re a teenager, all you want to do is hang out with friends and survive school.
But there is one more thing you must do if you want to enjoy the sweet, sweet freedom that comes with adulthood.
And it’s one thing to start building your credit early.
Whether you’re considering taking out a college loan, buying a new car, or buying a house, all of these require a good credit history. Thus, accumulating credit during adolescence will make it much easier to acquire these things.
However, here are seven ways you can become a teenager:
1. Get a secured credit card and use it responsibly
A secured credit card is like a debit card that helps you create credit. This is a great option for teenagers because you can open one without a credit history.
Here’s what you need to know about secure credit cards:
- To open a secure card, you need to make a deposit equal to your credit limit. (It’s usually between $200 and $500.)
- You will earn interest if you don’t pay the balance in full each month – just like you would with a regular credit card.
- Once you have created your credit, you can switch to a regular unsecured credit card.
The bank reports all your payments to three credit bureaus, which helps you get a loan. Thus, you need to make payments on time and keep your balance low to improve your credit score.
If you are not old enough to get your own credit card, you can ask your parents or relatives if you can become an authorized user of their account.
This is a great way to start setting up credit because you can use their good credit history. And since they use the card and make payments on time, this will also help improve your credit history.
But keep in mind that becoming an authorized user of someone else’s account is only a good idea if your parent or relative has a good credit history. If their finances are rotten, it will hurt you too.
The primary account holder is also responsible for payments. Thus, you need to discuss in advance how you will pay them for the purchases you make.
3. Get a student loan
We do not recommend taking out a student loan unless it is necessary. But if you need to take one for your college education, then there’s a silver lining: student loans do help build your credit history. This happens for several reasons.
First, getting a personal loan and making regular payments can help you establish a good payment history.
Second, student loans help increase the average age of your bills. And the older your accounts, the more “responsible” you appear to creditors.
If you choose to go down this route, federal student loans may be your best bet because they are available to anyone, regardless of credit history.
But be aware: student loans will not improve your credit score very quickly. (They are a longer game.)
And if you’re taking out a student loan, make a plan to pay it off as soon as possible.
4. Get a Credit Builder Loan
Credit building credit can be another great way to start building credit as a teenager. Typically, these are small loans ranging from $500 to $1,000 and they work like this:
- You apply for a loan from a bank or credit union (or through a platform like Self).
- You pay off the loan a little each month, usually over one or two years.
- The bank deposits your payments into a savings account for you (while reporting these payments to the credit bureaus).
- After you repay the loan, you can leave all the money in a savings account. Plus, you’ll get a good credit history to show for it!
Read more: Is a loan builder loan right for you?
5. Conquer the three golden rules for using credit cards
There are three golden rules you must follow with credit cards if you want them to boost your credit, not ruin it.
If you can beat these three rules as a teenager, you will avoid many of the problems with bad credit as an adult:
Golden Rule #1: Always make payments on time
Your payment history makes up 35% of your overall credit score. Missing even one payment can see your bill plummet, even if you’re only a few days late.
So always, always, always make your payments on time. If you’re worried you’ll forget, automate them! Banks these days have a lot of fancy features to help you “set it and forget it” with your accounts.
Read more: How to put money on autopilot
Golden Rule #2: Keep your credit card usage low – aim for 30% or less
Another important factor in your credit score is credit utilization, which is the amount of credit you use compared to the total amount of credit you have.
For example, let’s say you have a $1,000 credit limit. If your balance is $500, your credit card usage is 50%.
You can keep your credit usage low by using only a small portion of your available line of credit. (Ideally no more than 30%.) So with a $1,000 credit limit, that means your balance should not exceed $300. Anything above that will lower your score.
Read more: What is your credit utilization rate and how does it affect your credit score?
Golden Rule #3: Only use your card for things you can afford.
Credit cards can be a magical way to boost your credit and get free perks like trip rewards and cash back, but only if you pay your balance in full.
The average interest rate on a credit card is about 14.51%. And when you don’t pay off your balance, interest will accrue to your account—everyone. One. month.
Even small purchases can result in you paying hundreds of dollars in interest. So, make it a habit to always pay your balance in full.
6. Don’t apply for too many credit cards at once – split them up over time.
Another tip when building credit as a teenager: Don’t apply for too many credit cards at once. This can damage your credit score.
This is because every time you apply for a new card, your credit report is carefully reviewed by the card issuer. And complex requests can be delayed for up to two years, lowering your score by a few points.
Applying for too many credit cards can also make you look like a risky borrower. Lenders like to see that you can manage your finances responsibly. And opening multiple credit card accounts in a short period of time may signal that this is not the case.
It’s best to wait about six months before applying for your next credit card.
Read more: How to use a credit card responsibly
7. Sign up for a free credit monitoring service like Credit Sesame.
As you continue to gain confidence as a teenager, there is one more thing you can do to Indeed Feel like a responsible adult: sign up for a free credit monitoring service.
Your credit score is one of the most important numbers in your life. But it can be difficult to track down and understand what the different numbers mean.
That’s why services like Credit Karma and Credit Sesame are perfect for boosting a teenager’s creditworthiness.
- They will help you understand your credit score and rating.
- They send you alerts when something changes in your report.
- They offer tips and suggestions on how you can improve your score.
Plus, they’re completely free.
So, even if you’re just starting to accumulate credit as a teenager, subscribing to one of these services can help you stay on top of your finances.
If you’re a teenager, it’s important to start getting credit as early as possible, especially if you want to get the best interest on a student loan or a new car. (A good credit score may even help you pay less for car insurance.)
So, pick one or two items from this list – whether it’s getting credit for creating credit through Self or monitoring your credit score through Credit Sesame. Then start building those good credit habits early on. Trust us, it will be worth it in the long run.
Featured Image: Dean Drobot/Shutterstock.com