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Credit For Teens
What are ways to begin building your credit at 17 before you are 18 so you'll be able to do things once you turn 18?
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Ann Gianoglio Burk, MBA
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Ann’s Answer
Hello Jade - I am so happy you are thinking about financial success now! This something not a lot of teens think about, but it is so important to building for your future. The easiest way to start your credit is by getting a credit card.
There are a number of banks that offer credit cards specifically for teens. I will include a link the an Experian article with more information below.
To build your credit it is extremely important you use the credit card in a very intentional way and not just to buy stuff you can't afford. First, you will want to charge a purchase or number of purchases that are under 30% of the credit card limit. For example, if you qualify for a $300.00 credit limit then quickly spend about $80.00 on it and no more. The reason you want to stay under 30% is because anytime you use more than 30% of your available credit, your credit score will go down. However, not using your credit card at all will hurt your score as well.
Next, you will want to pay that balance of over 4 to 6 months instead of immediately. If you pay it off all at once then you will bring you credit use down to 0% too quickly, and it will lower your score. If you pay it over time, then it will show you can make consistent ON Time payments giving you points each month.
After you have established some credit, you will then want to contact your credit card company and ask them to increase your credit limit. The first time you do this they may give you a tough time and you may have to negotiate. When I was young and wanted a credit limit increase I would tell the credit card company I was going on a trip and wanted to use a card to make safe purchases out of town. This often worked.
And then start over by charging up to just under 30% and paying it off over 4 to 6 months.
Once you get a score over 710, and you are of legal age you can start thinking about utilizing credit in a more productive way that will help you build equity and not just debt. For example, you may want to take out a small loan to purchase a car. Now something to consider when taking out a loan is that your credit usage for that loan will start at 100% and then go down as you pay the loan down. This means if your credit card limit isn't high enough, your debt will go over 30% when you use a loan to purchase a car or property. This may cause a temporary drop in your credit score. If this happens, then you will want to change your payment strategy to pay off larger amounts to bring that credit usage under 30%. So when budgeting for loan payments make sure you can afford double or triple what the monthly payment is, and make sure the bank won't penalize you for paying of early.
These are just a few trick to build credit. I am also including a link to the site Nerdwallet to give you a lot more help and tips on building your credit. Good luck!
https://www.experian.com/blogs/ask-experian/best-credit-cards-for-teens/
https://www.nerdwallet.com/article/finance/credit-score/nerdwallet-millennial-money-build-credit-now?trk_location=ssrp&trk_query=Building%20Credit&trk_page=1&trk_position=6
There are a number of banks that offer credit cards specifically for teens. I will include a link the an Experian article with more information below.
To build your credit it is extremely important you use the credit card in a very intentional way and not just to buy stuff you can't afford. First, you will want to charge a purchase or number of purchases that are under 30% of the credit card limit. For example, if you qualify for a $300.00 credit limit then quickly spend about $80.00 on it and no more. The reason you want to stay under 30% is because anytime you use more than 30% of your available credit, your credit score will go down. However, not using your credit card at all will hurt your score as well.
Next, you will want to pay that balance of over 4 to 6 months instead of immediately. If you pay it off all at once then you will bring you credit use down to 0% too quickly, and it will lower your score. If you pay it over time, then it will show you can make consistent ON Time payments giving you points each month.
After you have established some credit, you will then want to contact your credit card company and ask them to increase your credit limit. The first time you do this they may give you a tough time and you may have to negotiate. When I was young and wanted a credit limit increase I would tell the credit card company I was going on a trip and wanted to use a card to make safe purchases out of town. This often worked.
And then start over by charging up to just under 30% and paying it off over 4 to 6 months.
Once you get a score over 710, and you are of legal age you can start thinking about utilizing credit in a more productive way that will help you build equity and not just debt. For example, you may want to take out a small loan to purchase a car. Now something to consider when taking out a loan is that your credit usage for that loan will start at 100% and then go down as you pay the loan down. This means if your credit card limit isn't high enough, your debt will go over 30% when you use a loan to purchase a car or property. This may cause a temporary drop in your credit score. If this happens, then you will want to change your payment strategy to pay off larger amounts to bring that credit usage under 30%. So when budgeting for loan payments make sure you can afford double or triple what the monthly payment is, and make sure the bank won't penalize you for paying of early.
These are just a few trick to build credit. I am also including a link to the site Nerdwallet to give you a lot more help and tips on building your credit. Good luck!
Ann recommends the following next steps:
Updated
Janene’s Answer
Ann gave some wonderful advice! An added tip is when you’re applying for your first credit card, many financial institutions won’t give you a card because you have no credit even though you’re applying for a card to help build your credit. If you find yourself in that position, a secured credit card would help you. Basically, if you’re applying for a $500 credit card, you would put $500 in your savings account. Your bank will place a hold on the $500 in your savings account as security for your credit card. As you build credit and prove that you can make your payments on time, you can later request to turn that secured credit card into a regular credit card. When that happens, your bank will release the $500 hold on your savings account. If you don’t have $500 to put in a savings account for a secured credit card, you could always get a cosigner and later remove that cosigner when you have established credit.