It's never too early to start creating a solid credit history, whether you're starting college in the fall or have just graduated and entered the workforce. When it comes to some of life's biggest milestones, your credit score, which is based on that history, weighs heavily. By starting now, you can make sure you'll be on the right side of the equation when the time comes. This article mentions the best way for young adults to build credit and maintain it.
Importance of Building Credit at Young Age
Young people frequently lack credit experience and may not be aware of how having good credit may make life simpler. Here are some significant benefits of establishing credit for young adults:
- Ease While Applying for Credit
- Ease While Renting an Apartment
- Ease While Applying For Insurance
- Ease While Finding a new job
- Ease While Refinancing Your Loans
Let’s get into the details!
- Get Ease While Applying for Credit:
When you're applying for loans and credit cards, your credit history and scores matter. If your credit is good, getting approved will probably be simpler, and you might even get better terms, such as a reduced interest rate.
- Get Ease While Renting an Apartment:
Before letting you move into an apartment, your landlord could run a credit check on you. Additionally, you might be required to pay a higher security deposit to rent the apartment, start the utilities, and set up internet or cable services if you have bad or no credit.
- Get Ease While Applying For Insurance:
In some places, the cost of your insurance may be influenced by your credit history. Additionally, having good credit might result in lower monthly premiums. Even though you could currently still be covered by your family's car or health insurance coverage, this won't always be the case.
- Get Ease While Finding a New Job:
When choosing whether to offer you a position, certain employers may take your credit into account. Good credit history shows you are a responsible and creditworthy candidate, so you will be an excellent asset to the company as well.
- Get Ease While Refinancing Your Loans:
If you have strong credit and a reliable job, you might be eligible to refinance private student loans at a cheaper interest rate.
What are the different ways to Build Credit at Young Age?
Starting at age 18 or earlier provides you an advantage because the duration of your credit history can be significant to creditors and is taken into account when determining credit scores. Young adults often don’t have a credit score, unless they already have a credit account. Here’s a list of different ways to start building credit at a young age:
- Establish a secured credit card
- Get a credit card on your own
- Timely bill payment
- Reduce your debt
- Apply for other alternatives
Let’s learn in detail about the best ways for young adults to build credit.
- Establish a Secured Credit Card
Similar to a standard credit card, a secured credit card is issued. When the bill comes, you make purchases and pay the amount. Interest will be added if the balance is not paid in full.
The distinction is that when you open the card, you make a deposit. You can use that as your credit limit. In this manner, the bank will be protected if you fail to make your payment and you can begin establishing credit in your own name. It's a technique to reduce the risk for everyone while still obtaining a credit card in your name without the help of your parents or anyone else.
- Get a Credit Card on Your Own
If you are able to obtain a credit card of your own, be realistic about your expectations. Right now, don't concentrate on the rewards otherwise, you will use it too much. Some folks take on too much. Instead, start with the fundamentals, such as the lowest possible interest rate. For establishing credit for young adults, search for a credit card without an annual fee.
- Timely Bill Payment
Nothing is more crucial for establishing credit than on-time bill payments. You may be able to keep on track by signing up for autopay. Additionally, you can schedule a monthly reminder on your calendar. The companies that issue credit cards also provide assistance, such as text reminders when a payment is due.
- Reduce Your Debt
At least make an effort to keep your debt low if you are unable to pay off your bill in full each month. Those with the best credit scores keep their debt at less than 10% of their credit limit. Try to keep it below 30% generally. For instance, if your credit limit is $5,000, you must maintain your debt balance below $1,500.
- Apply For Other Alternatives
As long as you make your payments on time, a credit builder loan—which you'll pay back in installments and receive money from—also helps raise your credit score. Then there are more options that let you add more bills to your score. By adding up your phone, utility, and streaming service bills, Experian Boost can raise your credit score on Experian, whereas eCredable Lift submits utility and phone payments to TransUnion. Rent and other ongoing costs, such as subscription services, let you raise your score on Perch.
Common Mistakes Young People make while Building Credit
Having access to credit makes it all too simple for young people to overspend and go into debt. The following are some things to avoid while establishing credit for young adults:
- Don’t go overboard with your spending
- Don't use your whole credit limit
- Don’t miss out payments
- Don’t close your account
Let’s dive deep into the details!
Don’t Go Overboard With Your Spending
Even if you are eligible for several credit cards, having too many of them can make managing your money too difficult. A hard inquiry into your credit history will be made by the lender each time you apply for a card, which lowers your credit score.
Don't Use Your Whole Credit Limit
You can keep your Credit Utilization Ratio low by not using your credit card's (or cards') whole credit limit and using less than 30% of it.
Don’t Miss Out Payments
Late and missed payments leave a negative record on your credit history and lower your credit score over time. Penalty costs may also be assessed as a result.
Don’t Close Your Account
Even if you no longer use a specific credit card, you might still want to maintain that account. The credit card company will still expect to be paid; it will still report your delinquency to the credit bureaus, and it will eventually turn your account over to a debt collection agency, all of which will have a negative impact on your credit score. Closing the account won't do anything to stop interest from accruing or make an outstanding balance go away. Keep the account open even after the balance has been paid in full, according to experts, to raise your credit use percentage.
How Long Does it Take to Build Credit?
As soon as your first account is reported to a credit bureau, your credit file is formed. Building solid and practical credit, however, can take some time. For instance, FICO cannot calculate a credit score for a credit report without an account that is at least six months old. Additionally, lenders might not be able to determine your trustworthiness if you have less than five credit accounts—a situation known as having a thin file.
The longer you've had open and active accounts, the better (if you've been making on-time payments), as the age of accounts is a component in credit scoring. While this takes some time, it is better than waiting until you need to apply for a loan or rent an apartment to do so because you are making a long-term investment in your financial future.
You've undoubtedly realized by now the significance of having good credit as well as the advantages of doing it as soon as possible. The next stage is to choose the kind of accounts you want to open and how you'll make sure you can pay your bills on time and keep track of your development. The path to financial freedom will then be open to you. One of the best ways for young adults to build credit is to opt for Zolve Azpire Credit Builder Card as it will help you build credit by reporting to three bureaus, charging zero annual interest rate and giving cashbacks and rewards.
Frequently Asked Questions (FAQs)
Q. How to build credit young?
A. As a student or young adult, you might be eligible for a secured credit card or a student card, both of which will assist you in establishing a credit history. A high credit score may eventually result in lower interest rates, more palatable repayment alternatives, or a larger loan.
Q. How young can you start building credit?
A. The typical minimum age for a child to become an authorized user and begin establishing credit is 13 to 15 years old, while some card issuers have no minimum age requirement at all ( read about the minimum ages for each card issuer; it is not uniform for all companies).
Q. What is the best credit card for young adults to build credit?
A. Zolve Credit Builder Card is the best credit card for young adults to build credit because it is user-friendly and requires no deposits, no annual interest rate, no SSN, and offers upto 15% cashbacks.
Q. How does a young person build credit effectively?
A. Consider making regular, little purchases as opposed to large ones. By doing so, you'll be able to maintain a minimal credit use rate and establish your credit history. When you obtain your first credit card, you must develop responsible credit management skills.
Q. What are the two best strategies for a teenager to develop sound credit habits?
A. Promote getting a job for your teen. If the money is earned hard, your teen will be more committed to managing it. Here are some easy ways how to build credit at a young age:
- Start saving and checking accounts
- One of your household bills might be put in your teen's name
- Opt for a secured credit card
The Azpire product is not supported by The Bank of Missouri.