How to Start Building Credit at 18

How to Start Building Credit at 18

Believe it or not, your credit score is very influential. To most lenders, your FICO rating measures how “risky” you are as a borrower. While there are exceptions to every rule, those with a lower score tend to receive loans at a higher interest rate to justify the risk. Understanding the nuance, it makes sense why some start building credit as young as 18.  

Benefits of a good credit

Having excellent credit could save you thousands of dollars in interest. Other financial opportunities include:

– Increased negotiating power on loan terms
– Higher balance limits
– Better car insurance rates
– Easier approval for renting a home or apartment
– Receive items such as cell phones without a security deposit

Young adults should start building credit as early as possible and research ways to improve their credit scores. Applying wise monetary practices from the beginning will aid in keeping a lifetime of financial well-being. 

Does your credit score start at zero?

Starting with no credit history does not mean your score is zero. Instead, it means you do not have a rating with the credit bureaus. There is no information on which to base a calculation, so there is not a score. The next set of paragraphs describes how to establish your first rating.

How to start building credit for the first time

Establishing a high credit score takes time. Every credit inquiry to open a loan, as well as every monthly payment once the loan is appointed, matters. Furthermore, there are other financial cushions you can put in place to pad your score. 

Maintain a savings account

Although having a savings account does not impact your credit score, sometimes lenders will ask for information regarding your assets. Maintaining a savings or checking account can signify that you are financially steady.

Open your first credit card

Opening a credit card at 18 is pivotal to building your credit. This is because one of the important metrics in determining your credit score is the average age of your accounts (credit cards, lines of credit, and loans). Getting a credit card early in your financial journey is helpful; just make sure to use your credit wisely.

Pro tip: If your parents have a credit card that’s been open for a long time and is in good standing, ask them to add you as an authorized user. Most issuing banks will allow you to inherit that card’s credit history, even if it’s older than you!

Pay your bill on time and in full

Two items that calculate your credit score are on-time payments and credit utilization. On-time payments mean the borrower has paid each month on or before the due date. While there are grace periods for late payments, it is best to pay when it is due. 

On the other hand, credit utilization is the total of your credit card balances divided by your number of credit lines. The figure represents a percentage, with a 0% utilization being perfect. As a norm, utilization of over 30% will considerably drag your score down.

Once you have your first credit card open, be sure to pay off your card on time and in full each month. Late payments will destroy your credit score, and ensuring utilization is as close to 0% as possible will help you quickly improve your credit score.  

Give it some time

The last step is to allow your credit some time to grow! As we mentioned before, the age of account plays a role in your credit score. Lenders look for applicants that maintain a steady history of payments. Keep a scheduled routine, and you will start building credit in no time. 

Join our free cash class: The secret to understanding your credit score

Achieva Credit Union invites you to our free online seminar. This hour-long workshop will go more in-depth about credit scores and how to improve your rating. Sign up today by, or browse through other available courses.

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