How to Build Credit at 18: 12 Things You Need to Do
When I was 18 I had no idea what credit was. By reading this article you’re already setting yourself up for an easier future than I did.
That’s because learning how to build credit at 18 is a massive step to giving yourself the best and longest possible credit history, which is vital for reaching that near-perfect 800 credit score.
In this article I’ll teach you everything you need to know about taking your first steps into proving to lenders why they should give you better deals. This includes:
How to build credit at 18: Understand your credit
What to do in the next few months
What to plan for the future
The easiest way to build your credit
Let’s get started.
How to build credit at 18: Understand your credit
Before you get stuck into practical tips on what to do to build your credit at 18, you first need to understand the basics. That’s why our first tips on building credit all center around understanding what a credit score is, and how to find out what yours is.
Tip #1: Learn what a credit score is
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First you need to understand what a credit score is, and what contributes towards it.
Simply put, your credit score is a measure of how reliable lenders see you in paying them back. The higher your score, the more confident lenders will be that you can pay them back.
This has many benefits, the primary of which being that a higher credit score can mean that you qualify for larger loans or a lower interest rate.
So, you can borrow more money (eg, for a car, or as a mortgage for a house) and will have to pay less back. This affects pretty much every credit type, from credit cards and auto loans to student loans and beyond.
Your credit score is made up of the following:
Payment history (~35%)
Credit utilization (~30%)
Length of credit history (~15%)
Credit mix (~10%)
New credit (~10%)
To learn all of the details check out our article on what credit score you start with.
For now, just know that you’ll get a better score by not missing any payments, by using less of your available credit (eg, credit card limits), having a longer traceable credit history, having a mix of credit types, and not taking out multiple credit lines in quick succession.
Tip #2: Check your credit score
So, now you know the basics of credit scores.
Great!
Now you need to find out what your score is.
One of the quickest ways to do this is to use one of the US’ three biggest credit bureaus:
By federal law you’re entitled to a free credit report from these bureaus once every 12 months, so there’s literally nothing stopping you. All you need is your name, address, social security number, and date of birth to confirm your identity.
This is useful to get you used to seeing your own credit report, and for double-checking the information linked to you.
For example, if you see on the report that there’s a credit source linked to you that you have no knowledge of, it could be a case of identity theft. In this case you’ll want to immediately make it known that the fraudulent account has no connection to you, which will result in it being terminated and no longer let it affect your credit score.
Remember, it pays to be vigilant.
What to do in the next few months
Image by Marco Verch, under CC BY 2.0
You’ve got the basics down - now it’s time to start taking action on them. Here’s where things get interesting.
The following are all tips that can be achieved in the next few months if you put your mind to it.
Tip #3: Open your own bank account
If you haven’t already, set up your own bank account. This should be completely free to do after sharing some of your information, and can be as simple as walking (or phoning) into your local bank and asking to set up an account.
You may already have a shared account with your family members, but it’s important to set up your own account so that you can start to build your own credit score. While you can benefit from someone else’s credit if theirs is stronger than yours the reverse is also true, which is why getting your own account is so important.
Take a look at the different accounts on offer, choose the one that makes the most sense for you, and start saving whatever you can.
Tip #4: Get your name on the bills
Next you need to get your name on bills or a contract of some sort. This could well provide the first credit footprint that the bureaus will be able to track.
The sooner you do this, the longer your credit history will be, and the more positively it will reflect on your credit score.
The best way to do this will depend on your current situation.
If you’re living alone then you’re probably already responsible for your own energy bills, which means that you’re ahead of the game! If you’re renting with other people, make sure that the bills are addressed to you.
If you’re living with family you might not be paying utilities just yet. No worries! If you have a phone, ask your parents to swap the contract so that it is under your name and you’re the one paying it.
You can still ask them for money to pay off your phone contract. The important thing is that you’re the one who is paying on paper.
Tip #5: Get on a credit card
Similar to getting your name on the bills, the sooner you get access to a credit card the better in terms of your credit history. This can be done in one of two ways.
You could take out your own credit card. This is a great option if you know that you can make use of it while not having to worry about going into the red.
Alternatively, you could get a credit card user that you know to add you as an authorized user. This is known as “credit card piggybacking”.
Whether you ask your family or friends, as long as whoever you piggyback from has a good credit score then you’ll benefit from that. You won’t technically be responsible for paying off the card, but you can still buy things with it.
Just make sure that whoever the primary account holder is will be okay with whatever you buy and will be able to cover any costs before you incur them. Remember; if their credit score takes a nosedive, so will yours.
It’s also worth making sure that you don’t take out a new credit card within at least a few months of taking out a different new credit line. Opening multiple credit lines in quick succession hurts your credit score rather than helps it - more on that later.
Tip #6: Make a budget
When you first get access to credit it can seem like a magic pill to let you live in luxury. However, if you spend beyond your means then it will always come back to hurt you.
That’s why it’s important to set up a monthly budget and stick to it.
By figuring out how much you can spend each month without going into the red, you get a good idea of what kind of lifestyle you can live, what luxuries you can afford, and what credit you can take on.
Remember, there’s no point in taking out a loan or credit card that you won’t be able to pay off. All that will do is tank your credit score and make lenders reluctant to give you anything else.
Know what’s coming in, what’s going out, and when all of this is happening. Even if it’s a case of “I earn $X per month from work, bills are $Y, food is about $Z, so I have $T left per month to save or spend”, it’s better than crossing your fingers and just hoping that you can pay off your debts each month.
Tip #7: Never miss a payment
Roughly 35% of your credit score is made up of your payment history record. That’s why, when wondering how to build credit at 18, it’s vital to understand that late or missing payments are one of the biggest mistakes you can make.
If you have any bills or credit of any kind, set yourself reminders to pay everything off on time. Don’t leave it until tomorrow - if you have the money available just pay it off and get it done.
If you miss or make a late payment it can take up to 7 years to be deleted from your record. For all of that time your credit score will be getting dragged down, and your options for loans will be both limited and worse in terms of interest rates.
Write the dates on a calendar. Make alerts on your phone. Whatever you do, don’t miss a payment.
Tip #8: Set up direct debits
Following on from making your payments on time, one of the best ways to do this is by setting up direct debits. This will let you automatically pay a specific amount to an account of your choice on a certain schedule.
For example, I currently have direct debits set up to automatically pay my monthly rent, utility bills, and phone contract. That way I don’t have to worry about them beyond making sure that there’s enough money in my account come the day of the payment.
It takes a lot of the stress out of managing your money and can even make it easier to budget. If you know exactly when and how much money is going out of your accounts, you can plan around it to make it as painless as possible.
Tip #9: Manage your subscriptions with GrowCredit
The final thing that you can do in the next few months to start building your credit score is to start managing your subscriptions with GrowCredit.
With over 200 million users worldwide, it’s hard to ignore just how widespread Netflix has become. Add that to Spotify’s 155 million paying users and between just two companies you have a massive user base.
Whether you’re binging your favorite show, listening to your favorite bands, or paying for a local gym subscription, GrowCredit lets you stay on top of your subscriptions in a single place while also building your credit score.
What to plan for the future
Finally, we’re onto your future plans. Don’t worry, I’m not about to assign you a bunch of homework!
Instead you just need to start thinking about what you can do going forwards while still keeping up the good habits we’ve already covered.
Tip #10: Don’t add multiple credit lines in quick succession
No matter what kind of loan or credit card you’re taking out, try to make sure that you don’t take out more than one credit line in quick succession.
Remember that “new” credit makes up roughly 10% of your credit score, which directly relates to how many lines of credit you’ve taken out recently.
The fewer credit lines you’ve opened recently, the better it reflects on you through your score. This shows lenders that you’re reliable and don’t take on more than you can chew, or too much at once.
Tip #11: Consider a student loan for further education
At this point you might be thinking of going into further education. If you are, chances are that you’re going to need to take out a student loan.
Don’t worry - that’s not a bad thing. In fact, it can reflect very well on you when it comes to your credit score!
Obviously further education isn’t the right choice for everyone, and (as with most types of credit) you shouldn’t take out a student loan if you don’t need one. However, as debts go, there are far worse things to do with it than training yourself for whatever profession you want to go into.
Tip #12: Look into auto loans
Finally, it’s worth looking into what car you might want to get in the future, and who will offer a loan to cover the cost of it.
Again, you don’t want to be doing this the week after you take out a new credit card, but auto loans are yet another way to diversify your credit history and boost your credit score!
The easiest way to build your credit
I’ve already mentioned it once in this article, but the easiest way to build your credit is by using GrowCredit to track, manage, and pay off your subscription services.
By putting your monthly subscriptions on their own card you can take care of them all from the same place and grow your credit score at the same time. GrowCredit reports your account balance and payment history to the credit bureaus at the end of each month, so you don’t have to wait around for your next credit report to start having an effect on your score.
Plus, because you can only add your subscriptions to your account, there’s no way that you can go on a shopping spree in your local mall and run up a bill that you can’t pay off!
Get started building your credit today. Click here to sign up for a GrowCredit Mastercard.