Having a good credit score can help you save money on student loans, rent an apartment, secure a job, purchase a car and more. But if you’ve just turned 18 and have no credit history, you won’t have a credit score yet.
To start building one, you need to engage in activities that are reported to the three major credit bureaus (Equifax, TransUnion and Experian).
This article highlights seven strategies you can use the day you turn 18.
First, we recommend reading the brief overview (below) of how your credit score is constructed; knowing this information will help you understand how to make credit a positive force in your life rather than a negative one.
The Basics of Your Credit Score
A credit score (which can range from 300 to 850) is calculated based on your past behavior with regard to debt.
How it works is when you borrow money or get a credit card, the lender reports your activity to organizations called credit bureaus. These bureaus keep track of how timely you are with payments, how much debt you have, and other financial behaviors.
A company like FICO takes information from credit bureaus and assigns you a score based on how responsible they believe you to be when it comes to using credit.
Your score is comprised of the following factors:
- Payment history: 35%
- Account balances: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
Your credit report consists of “tradelines,” which are the lines of credit that you already have. There are three types of tradelines:
- Revolving accounts: This includes open lines of credit like credit cards or a home equity line of credit. With a revolving account, you can use some or all of the credit at any given time, and you can continue to use that credit over and over as you pay down the balance.
- Installment accounts: This is a type of credit that includes loans with a predetermined payment schedule, like a car loan or a mortgage. With installment accounts, you borrow a lump sum all at once and then pay it back over time with structured payments.
- Open accounts: This type of tradeline is typically for businesses and not individuals. It’s when a business extends a line of credit for goods or services to be paid back at a later date.
How to Build Credit When You Turn 18
Below are the fastest safe ways we recommend for building credit as early in your life as possible.
But before you start, make sure you have a checking account, which you’ll need in order to pay any credit card bills (or other obligations) you accrue. If you don’t have one, we recommend Chime.
#1. Get Added as an Authorized User on Someone Else’s Credit Card
When you’re added as an authorized user on someone else’s credit card, all of the spending and payment activity on that card appears on your credit report, as well as the credit report of the account owner.
In other words, if you have a parent or family member who uses credit responsibly, you can benefit significantly from having their responsible credit usage reported to the credit bureaus under your name.
In fact, this is often the fastest, easiest, and safest way to start building your credit score quickly.
But, realize that when you’re an authorized user on an account, any negative credit behavior will also appear on your credit report, and that could harm your credit score.
Also, this differs from the risky business of buying tradelines, where you pay to become an authorized user on a random person’s account. You want to work with close friends and family members only.
#2. Get a Share Secured Loan or a Credit Builder Loan
Share secured loans are loans that use your savings account as collateral. They’re also sometimes called passbook loans.
These loans will freeze the money in the savings account and extend you a loan based on that amount. You then pay back the loan in installment payments. The loan gets reported to the credit bureaus, and an installment account tradeline appears on your credit report. Positive payment history will then boost your credit score.
Share secured loans are typically offered by credit unions. And while they often have relatively low interest rates, the process for applying can be cumbersome. You have to join the credit union, open accounts, deposit money, and then apply for (and be approved for) the loan.
An easier alternative is getting a credit builder loan.
With a credit builder loan, you enter into an agreement to make periodic (usually monthly) payments at a set amount. You do not get any money upfront. Instead, the loan is set aside in an account that you don’t have access to. At the end of the loan term (after 18 months, for example), assuming you’ve made all the required payments, you’ll receive the funds as a lump sum, minus any fees or interest you may owe based on your loan agreement.
All the while, an installment account tradeline appears on your credit report, and your on-time monthly payments contribute positively to your credit score.
Of course, credit builder loans do cost money, so the goal should be to use them to boost you score enough to get a quality no-annual-fee credit card.
Our recommendation for a credit builder loan is Chime. However, Chime requires that you have income from a job deposited into your checking account. For an option that doesn’t require income, see our review of Self.
#3. Get a Student Credit Card
Student credit cards often don’t have minimum credit score requirements like standard credit cards. However, when you’re considering a student credit card, look for one with no annual fee and competitive interest rates; credit card companies are taking a higher risk by lending to a student without credit history, which means these cards often come with higher interest rates.
The nature of student credit cards means they don’t come with large credit lines or impressive perks. Some offer menial cash-back rewards, usually around 1%. So, rather than focusing on a specific card’s benefits, consider the card family you’re joining. Because with a positive payment history, you may be eligible to upgrade your student credit card as soon as 12 months after opening.
Specifically, look for student cards from the likes of Chase, Discover and Capital One, which all allow you to upgrade to a better card in the future.
Avoiding a card with an annual fee is crucial. Remember, your account length makes up 15% of your credit score. Keeping the same account (or one that has been transitioned to a non-student account) after graduation can help your score, so you want to make sure the card is one you can keep indefinitely into the future. You may be enticed to close a card with a high annual fee, which would mean closing your oldest tradeline.
See the top student credit cards available right now, along with APRs and cash-back rewards, at CardRatings.
#4. Get a Secured Credit Card
In contrast to student cards, secured credit cards require a cash deposit, which serves as collateral. In most cases (though not always) your security deposit sets your credit limit.
For example, you might deposit $250 to get a credit limit of $250 a month.
This type of card can help build credit through on-time payments. Even though you’re essentially borrowing from yourself, your payments will be reported to the credit bureaus and will help you improve your credit score.
However, secured credit cards don’t always report credit utilization to credit bureaus. While this can be a benefit if you’ve maxed out your card (which, let’s be honest, should never be happening at this stage of your credit journey), that means you won’t see any improvement to the credit utilization component of your credit score (which is 30% of the total).
If the secured credit card you get does report credit utilization, the best practice is to keep your balance below 30% of your total available credit.
For instance, on a secured credit card with a $250 credit limit, you wouldn’t want to exceed a statement balance of $75.
For a comprehensive list of the best secured credit cards, you can visit CardRatings.com’s Best Secured Credit Cards page.
#5. Get a Federal Student Loan
Unlike other kinds of loans, Federal student loans do not require a credit history or income to qualify for. You simply need to be registered at an accredited post-secondary education at least half-time (six credit hours, in most cases).
Student loans are known for their low interest rates. In 2024, the interest rate for subsidized and unsubsidized federal loans is 5.05%.
Plus, interest on Direct Subsidized Loans does not begin to accrue until after you graduate, making this an especially attractive strategy for those who have access.
Note that these loans do come with origination fees of 1.057%, which is deducted from the loan balance upon issue.
Why does this work for building credit?
When you’re approved for a student loan, it will appear on your credit report immediately (as an installment account tradeline), even though you’re not required to make any payments.
Therefore, you have the ability to take out a small student loan — even if you don’t need the funds — and then immediately start paying back the loan with the loan funds in order to build a positive payment history.
If you have access to a subsidized loan, there is no interest while you’re in school, so the only cost is the origination fee.
This option is only available with Direct Subsidized Loans. If you can only access an unsubsidized loan, interest starts accruing immediately.
#6. Use a Bill Reporting Service
Using a bill reporting service like Experian Boost can help you increase your credit by reporting payments for things like rent and utilities to the credit bureaus. Some services even work with mobile phone payments and video streaming services.
This can be useful if you don’t qualify for other types of credit products yet, though Experian Boost does require the following to get started:
- You have at least one account on your credit report that has been active for at least six months.
- You have at least one account on your credit report that has been reported to a credit bureau within the last six months.
Like a credit builder loan, you want to put yourself in a position as quickly as possible to avoid paying the monthly fee associated with bill reporting services.
The best way to do that is to monitor your credit score while using these services. Once it has improved, apply for a no-annual-fee credit card from one of the major issuers (Chase, Discover or Capital One). While the credit score needed to get an unsecured card varies by lender, the minimum is around 550.
Sign up for Credit Karma, which allows you to track your credit score for free and will recommend credit cards to you once you’re at a certain credit level.
Key Steps for Building Your Credit Score From Scratch
The keys to building your credit score lie in what is most important to the credit bureaus.
Pay Your Bills On Time
On time payments account for 35% of your credit score, so it goes without saying that you need to avoid making late payments. (Plus these late payments will stay on your credit report for seven years!)
Always set up automatic payments so that you’re covered in case you forget.
Keep Your Account Balances Low
This applies specifically to revolving credit tradelines, as installment loans don’t impact your credit utilization ratio.
It is recommended you keep your balances below 30% of their limits.
For example if your credit card limit is $1,500, your revolving balance should be below $450.
Your credit utilization is averaged across all your accounts. If you have one card at 100% utilization and one at 0%, you will still have 50% utilization across all your accounts.
Avoid Closing Accounts
It’s beneficial to have credit accounts for a long time, because account age makes up 15% of your credit score.
While this doesn’t mean continuing to pay for services like credit builder loans and bill reporting services for years on end, you do want to make sure to at least open other credit lines before closing these, as doing so can negatively impact your credit score.
Don’t Make Too Many Requests for Credit
Every time you apply for a loan or a line of credit, the issuer will pull your credit report. This is called a hard inquiry, and will show up on your report the next time someone pulls it.
Even though this only accounts for 10% of your credit score, several hard inquiries in a short amount of time can be a red flag for creditors.
Inquiries stay on your credit report for two years, at which point they disappear.
Use Multiple Types of Accounts
Even though credit mix only accounts for 10% of your score, you can still be mindful about this when you’re looking to finance purchases.
For example, if you’re looking to purchase a new computer for $1,500, you could use a credit card or a personal loan, depending on what type of tradeline you’re needing to add to your credit mix.
Common Credit Mistakes Teens and College Students Make
As young adults begin to take care of their own finances, there are common pitfalls to be aware of — especially when it comes to managing credit.
- Thinking of credit as “free money.” I got my first credit card shortly after leaving home and immediately used it to buy anything that I wanted but couldn’t afford on my student budget. This included everything from eating out to new clothes. Soon after, I found myself in hundreds of dollars in debt, which took me several months to pay off. Teens and college students can get themselves in hot water by using credit to buy items without a plan for repayment. As a rule, we recommend not carrying any balance on your credit cards. In other words, don’t buy things you couldn’t buy with cash. A good tip is to put one small monthly expense — e.g., a subscription to Spotify/Netflix — on your card, and then don’t use your card for anything else.
- Not addressing problems early on. One team member here at The Ways To Wealth shared that a mistake he made early on was letting a past-due account go into charge off status without understanding the repercussions. A charge off is when an account is 120 to 180 days past due and the credit issuer sells the debt to a collection agency. You still owe the debt, and the negative mark stays on your credit report for seven years — even if you pay the debt off in full. If you’re struggling to make your payments, contact your credit issuer and see if they have options for those who need more time to pay. Often, they’re more than willing to work with you. Seven years is a long time, so it’s worth doing whatever you can to avoid that scenario.
- Forgetting to pay bills. Being ambivalent about paying your bills on time can put you in a pickle. On-time payments make up a huge portion of your credit score, so forgetting to make payments can drag your score down quickly and take months or years to recover from. Bill reminders and automated payments can prevent you from forgetting to make a payment.
- Being scared to use their credit. Warnings and cautionary tales about credit cards are often issued to new users from well-intended loved ones. If you’re nervous about spending on a credit card, just pick one bill to put on your card each month. Then, set up automatic payments to ensure your bill is paid in full and on time.
FAQs
You will need to be 18 to get credit under your own name. However, there is no legal minimum age requirement to be added as an authorized user to a credit card, though your parents will have to check with their credit issuer’s policies to see if they will report credit activity on the accounts of minors. For example, Chase does not report for minor aged authorized users, whereas Discover will report for minors 15 and older.
For your first credit card, look for a card with no annual fees, competitive interest rates, and longevity. You want your first credit card to be one that you will use for years to come to build your credit account length history. Here are our recommendations for the best first credit cards.
Summary and Final Thoughts
Establishing credit is an important part of financial health. Pay attention to how credit is calculated and prioritize the biggest factors, like on-time payments and keeping credit utilization low. Don’t forget to regularly monitor your credit report for errors or unauthorized activity. You want your credit report to be an accurate reflection of your creditworthiness. The key is to begin responsibly and gradually build your credit history.
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