How to Start Building Credit at 21?
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How to Start Building Credit at 21?

Moumita Basu

If you don't have a credit history, getting credit might be challenging. It might be challenging to obtain a loan, credit card, or even housing. It might be challenging for young people to develop a great credit score right away and demonstrate a strong credit history that lenders take seriously. Young people suffer from low credit ratings in part because they haven't had enough time to build wealth and experience. But how can you demonstrate a track record of timely repayment if no one will even extend your credit?

If you are anxious about “how to start building credit at 21”, the good news is there are many easy and effective ways of building credit at 21. Let’s learn in-depth!

What is the Importance of Building Credit at 21?

Before starting to build credit, you should know the importance of it. A person needs good credit to apply for a credit card, get their new iPhone approved by a cell phone retailer, or even ask their bank for overdraft protection on an account. For expensive purchases like vehicle loans, new mortgages for an apartment or home purchases, and (in some situations) to be eligible for reasonably priced insurance or a new job, a strong credit score is even more important (most insurers and prospective employers now check your credit score as part of the selection process).

Unfortunately, establishing a solid credit rating frequently takes years. Your credit history affects a lot of parts of your life, and it can make getting loans and getting favorable interest rates much simpler if your credit history is strong. Lenders look at a borrower's credit history before deciding whether to provide them a loan. A person is more likely to get a better loan rate if they have a long history of successfully borrowing and making on-time repayments. Additionally, there is a higher likelihood that the borrower would pay a reduced interest rate.

It all comes down to the lender's risk, as you can see. Better loan terms are offered to borrowers with a solid credit history since they are viewed as less risky. Getting a reduced interest rate on any loan, including credit lines, auto loans, and mortgages, is very beneficial because it enables you to pay off the loan more quickly and accrue less interest overall. You may move into a better financial situation as a result.

Is It Possible to Build Credit at 21?

Absolutely, you can start your credit journey at 21, in fact, it's better to start building your credit journey early. The general law is to apply for a credit card, you must be at least 18 years old. The age requirement must be met, even if you have an add-on credit card. Anyone who meets this requirement is qualified to receive a credit card. Although, each bank has a minimum income requirement that must be met in order to qualify.

How to Start Building Credit at 21?

Building a solid credit history helps to increase one's creditworthiness, but it can be challenging for young people between the ages of 20- 25 to do so.

At this age, many people start their professional careers, and they should also start building their creditworthiness. It is challenging for young professionals to establish a solid credit history because banks are frequently hesitant to lend to them. Here are some of the easy ways to build credit at 21:

  • Piggyback off your parents
  • Choose the right card for you
  • Carry one card at a time
  • Take student loan
  • Maintain low credit card balances

Let’s get into the details.

Piggyback off Your Parents

According to the Credit Card Act, anyone under the age of 21 who wants to receive a card in their own name must have a co-signer or provide evidence of independent income. Consider adding yourself as an authorized user on your parent's account if you don't have either. You will gain experience making frequent payments if your parents require you to reimburse them for your purchases.

An authorized user's ability to create a credit history is aided by the fact that many credit card firms also report any activity on the account for both the primary account holder and the authorized user. This procedure differs for different card issuers.

Choose the Right Card For You

Every purchase you make with a debit card is made directly out of your own bank account, so no credit is extended and debit card activity does not appear on your credit reports. With a credit card, the cardholder covers the initial cost of your goods, and you make monthly repayments. You can establish a credit history thanks to this.

You might be able to obtain a secured credit card if you are not eligible for an unsecured credit card. A secured card gives you access to a line of credit for the same amount in exchange for a completely refundable security deposit.

Carry One Card at a Time

It makes sense to have several credit cards. But why tempt fate or take risks when you're young and just getting started? Multiple cards might make it simpler to forget to pay one and encourage excessive spending, both of which can harm your credit. Before applying for more credit cards, try to remain with one card until you have been paying your amount in full—consistently and on time—for at least a few months or until you are satisfied you can handle more credit.

Take Student Loan

It's not a smart idea to take out student loans just to establish credit because your credit score won't be created until you start making payments. However, as soon as you open a student loan account, you'll begin developing a credit history. Private, federal, and refinancing student loans all show up on your credit report and eventually affect your score.

First, take out federal loans since they offer superior borrower safeguards, such as income-driven repayment schedules and forgiveness initiatives. The majority don't demand a credit check. To apply, complete the FAFSA, or Free Application for Federal Student Aid. Most students require a cosigner to be eligible for private student loans because they are credit-based.

Maintain Low Credit Card Balances:

Maintain a low credit usage ratio—the amount of credit you are using compared to your credit limits—to raise your credit score. Keep your credit utilisation rate below 30% as a general guideline. If your credit card limit is $1,000, this means you should strive to borrow no more than $300 at once.

Because the amount you owe makes up 30% of your credit score, if your credit utilization rate rises too much, this could hurt your score.

How long does It Take to Build Credit at 21

Although building credit takes a significant amount of time and patience, it usually takes a minimum of six months to generate your first credit score. To build up enough history for a FICO credit score, which is used in 90% of loan decisions, it will take around six months of credit activity. A FICO credit score of over 700 is regarded as good credit. Scores range from 300 to 850.

The finest advise is still the simplest of all the small suggestions for improving credit. Spend within your means, pay at least the minimum each month, and always be punctual with your payments. You should eventually be rewarded with a lifetime of good credit if you adhere to these straightforward recommendations. Start building your credit with the easy and best Zolve Credit Builder Card, as it comes with no minimum deposit, no additional charges, and up to 15% cashback.

Frequently Asked Questions(FAQs)

How to build credit at 21?

Some of the easy ways to build credit at 21 are:

  • Apply for a Credit Card.
  • Become an Authorized User.
  • Set Up a Joint Account or Get a Loan With a Co-Signer.
  • Take Out a Credit-Builder Loan.

At age 21, what credit score do you start with?

For people in their 20s, the typical FICO® credit score is 660. Consumers begin to build their scores between the ages of 20 and 29. These customers might be paying off their student debts with a low-limit student credit card.

What are two ways that a person under the age of 21 can access credit?

According to the Credit CARD Act, anyone under the age of 21 who wants to receive a card in their own name must have a co-signer or provide evidence of independent income. Consider adding yourself as an authorized user on your parent's account if you don't have either.

What will happen if I don't have any credit history?

It simply indicates that none of your bills or outlays have been reported to the credit agencies. If you've never used a credit card and/or prefer to pay cash for all purchases, including homes and cars, you may not have a credit history. It also doesn't mean you're irresponsible if you have no credit history but it will do no good to your financial planning.

When I become 21 years old, what is my credit score?

Due to the lack of information on their credit report that may be used to calculate a credit score, 18-year-olds actually do not have any credit scores at all. However, as soon as you apply for a loan or credit card and begin making payments, your bank begins informing credit reporting agencies about the status of your account.