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Establishing Credit at a Young Age

Establishing credit and learning how to properly manage it at a young age can make your transition into adulthood much easier. Good credit isn’t exclusive to older adults. Teenagers and college students can have it too if they pick up a few good habits at a young age.

Establishing Credit Early on in Life

If you are a teenager about to head off to college, are a current college student, or are the parent of an adolescent, you’re going to want to hear this. Your (or your child’s) credit profile is thin to non-existent. While that doesn’t sound good, it only means that your/their credit can be easily built up with a few simple tips and some good habits.

  1. Open a Checking and/or Savings Account
    If you are younger than 18, ask your parents to help you set up your own checking and/or savings account. You’ll need one or the other (or both) to maintain good credit practices.
  2. Get a Credit Card Early
    You can’t apply for a credit card if you are under 18, but you can ask your parents to open up a joint account with you. It doesn’t need to have a high limit or any fancy perks. The point of having it is to use it as a credit-building tool. Having a credit card during adolescence not only establishes your credit history nice and early, it also teaches you how to properly manage it.
  3. The Almighty Timely Payment
    If you use your credit card properly, it will be your staunchest credit-building ally. All you need to do is charge one purchase to it each month and then pay off the balance before the due date. Never be late with your payments. Your payment history plays the most important role in determining your credit score. If you make your payments on time each month, your credit rating will improve over time.
  4. Keep a Low Balance
    You’ll notice that your credit card will have a limit. How much of it you are utilizing is known as your balance-to-limit ratio, and it has an effect on your credit score. To figure out your own credit utilization, just divide your card’s balance by its limit. A high ratio may indicate that you are financially irresponsible or are living outside of your means. You should never be spending more than you earn and you should always try to keep your credit utilization to 10-30% at the most.

Learning how to manage credit at an early age is great practice for the future. Adulthood inevitably greets you with many more expenses to manage, but you’ll be ready for them if you’ve been practicing good habits since you were a teenager.