When you’re a teenager, all you want to do is chill with friends and survive school.
But there’s one more thing you should do if you want to enjoy the sweet, sweet freedom that comes with adulthood.
And that one thing is to start building your credit early.
If you have plans to take out a loan for college, get a new car, or buy a house, all of these things require a good credit score. So, building credit as a teenager will make acquiring these things much easier.
That said, here are seven ways you can build credit as a teen:
1. Get a secured credit card and use it responsibly
A secured credit card is like a debit card that helps you build credit. It’s a great option for teens because you can open one with no credit history.
Here’s what you need to know about secured credit cards:
- To open a secured card, you must make a deposit equal to your credit limit. (This is usually between $200 and $500.)
- You’ll get charged interest if you don’t pay your balance in full each month — just like a regular credit card.
- Once you’ve built up your credit, you can transition to a regular unsecured credit card.
The bank reports all your payments to the three credit bureaus, which is how it helps you build credit. So, you need to make your payments on time and keep your balance low to build your credit score.
- Best secured credit cards of 2022
- How secured credit cards work
- Secured credit cards vs. unsecured credit cards
If you’re not old enough to get your own credit card, you can ask a parent or relative if you can become an authorized user on their account.
This is a great way to start establishing credit because you get to piggyback off of their good credit. And as they use the card and make payments on time, it’ll help build your credit history too.
But be aware — becoming an authorized user on someone else’s account is only a good idea if your parent or relative has a good credit history. If their finances are rotten, it’ll hurt you, too.
The primary owner of the account is also the one responsible for payments. So, you’ll need to discuss ahead of time how you’ll pay them back for the purchases you make.
- Can being an authorized user on someone else’s credit card help you build credit?
- Authorized cardholders: the pros and cons
3. Take out a student loan
Now, we don’t recommend taking out a student loan if you don’t have to. But if you do need to take one out for your college education, then there is a silver lining: student loans actually help build your credit history. This is for a few different reasons.
First, the act of taking out a personal loan and making regular payments can help you establish a good payment history.
Second, student loans help increase the average age of your accounts. And the older your accounts, the more “responsible” you seem in the eyes of creditors.
If you decide to go this route, federal student loans may be your best bet because they’re available to anyone, regardless of credit history.
But know this: student loans won’t build your credit score very quickly. (They’re more of a long game.)
And if you do take out a student loan, make a plan to pay it off as soon as possible.
4. Get a credit-builder loan
A credit-builder loan can be another great way to start building credit as a teen. They’re typically smaller loans that range from $500 to $1,000, and they work like this:
- You apply for a credit-builder loan with a bank or credit union (or through a platform like Self).
- You pay the loan back little by little each month, usually within one or two years.
- The bank deposits your payments into a savings account for you (all while reporting those payments to the credit bureaus).
- Once you pay off the loan, you get to keep all the money in the savings account. Plus, you get a good credit history to show for it!
Read more: Is a credit builder loan right for you?
5. Conquer the three golden rules of credit card usage
There are three golden rules you should follow with credit cards if you want them to boost your credit instead of destroying it.
If you can conquer these three rules as a teenager, you’ll avoid a lot of bad credit woes as an adult:
Golden rule #1: Always make your payments on time
Your payment history makes up 35% of your total credit score. Miss even one payment, and you can see your score drop by a long shot — even if you’re just a few days late.
So, always, always, always make your payments on time. If you’re worried you’ll forget, automate them! Banks have tons of fancy features these days to help you “set and forget” your bills.
Read more: How to put your money on autopilot
Golden rule #2: Keep your credit card utilization low — aim for 30% or less
Another important factor in your credit score is credit utilization, which is the amount of credit you’re using compared to the total amount of credit you have.
For example, say you have a $1,000 credit limit. If your balance is $500, your credit card utilization is 50%.
You can keep your credit utilization low by only using a small portion of your available credit line. (Ideally, no more than 30%.) So, on a $1,000 credit limit, this means keeping your balance below $300. Anything over that will lower your score.
Golden rule #3: Only use your card for things you can afford
Credit cards can be a magical way to boost your credit and score free perks like travel rewards and cash back — but only if you pay your balance in full.
The average credit card interest rate is around 14.51%. And when you don’t pay off your balance, interest gets charged to your account — every. single. month.
Even small purchases can lead to you paying hundreds of dollars in interest. So, make a habit early on to always pay your balance in full.
6. Don’t apply for too many credit cards at once — space them out over time
One more pro-tip when building credit as a teen: don’t apply for too many credit cards at once. Doing so can hurt your credit score.
This is because each time you apply for a new card, the card issuer does a hard pull of your credit report. And hard inquiries can stick around for up to two years, dinging your score a few points.
Applying for too many credit cards can also make you look like a risky borrower. Lenders like to see that you’re able to manage your finances responsibly. And opening multiple credit card accounts in a short period of time can signal that you’re not.
Best practice is to wait around six months before applying for your next credit card.
Read more: How to use a credit card responsibly
7. Sign up for a free credit monitoring service like Credit Sesame
As you continue to build credit as a teenager, there’s one more thing you can do to really feel like a responsible adult: sign up for a free credit monitoring service.
Your credit score is one of the most important numbers in your life. But it can be hard to track it and understand what all the different numbers mean.
- They help you understand your credit score and rating.
- They send you alerts when something changes on your report.
- They offer tips and suggestions on how you can improve your score.
Plus, they’re totally free.
So, even if you’re just starting to build credit as a teen, signing up for one of these services can help you stay on top of your finances.
If you’re a teenager, it’s important to start building credit early — especially if you want to get the best rates on a loan for school or a new car. (A good credit score can even help you pay less for car insurance.)
So, pick an item or two from this list — whether it’s getting a credit-builder loan through Self or monitoring your credit score through Credit Sesame. Then, start building those good credit habits early on. Trust us, it’ll be worth it in the long run.
Featured image: Dean Drobot/Shutterstock.com