Building Credit While You're Still in High School: A Guide for Young Adults
"Credit score? What's that?" I remember thinking this in high school. Back then, my biggest concern was getting good grades and making the varsity soccer team. Credit seemed like something grown-ups worried about. But as I delved into the world of personal finance after graduation, I realized how crucial a good credit score is – it's the key to unlocking a world of financial opportunities.
If you're in high school right now, you might think building credit is something for future you to worry about. But the truth is, the sooner you start, the better. Establishing a good credit history early on can set you up for success in your financial life, making it easier to get loans, rent apartments, even land a job. And guess what? It's not as complicated as you think.
This post is your guide to building credit in high school, based on insights I gathered from a variety of expert sources, including financial institutions, government agencies, and personal finance blogs. Let's dive in and explore how to start building your credit history while you're still in school.
The Power of a Good Credit Score
A credit score is a numerical representation of your creditworthiness, essentially a snapshot of how responsible you are with borrowed money. Think of it as a report card for your financial behavior.
A good credit score opens doors to a range of financial benefits, including:
- Lower Interest Rates: When you have good credit, lenders trust you more and are willing to offer lower interest rates on loans for things like cars, homes, and student loans.
- Better Credit Card Offers: Having good credit allows you to qualify for credit cards with lower interest rates, better rewards, and even higher credit limits.
- Easier Approval for Rent: Many landlords use credit scores to assess potential tenants. A good score can make it easier for you to secure an apartment or a house.
- Lower Insurance Premiums: A good credit score can help you qualify for lower premiums on car insurance, homeowners insurance, and even life insurance.
On the flip side, a low credit score can make it much harder to secure these benefits. It can lead to higher interest rates, lower credit limits, and even difficulty getting approved for loans or renting an apartment.
The Importance of Building Credit Early
Contrary to popular belief, you don't automatically get a credit score when you turn 18. It's built based on your credit history – the record of your financial activity. If you haven't established credit, you won't have a credit history, and that means no credit score.
Think of it this way: starting early is like planting a seed for your financial future. The sooner you begin, the stronger your credit history will be. This can make a big difference in the long run, making it easier for you to achieve your financial goals.
Building Credit in High School: Strategies and Tips
Now that you understand the importance of starting early, let's explore some practical ways you can start building your credit while you're still in high school:
1. Become an Authorized User
One of the easiest ways to start building credit is to become an authorized user on a parent's or guardian's credit card. This means you get to piggyback on their good credit history, allowing you to build your credit score without even having your own credit card.
Here's how it works:
- The Parent's Responsibility: The primary cardholder (your parent or guardian) is responsible for the account, making payments on time and keeping their credit utilization low.
- Your Piggyback: As an authorized user, you will get access to the same credit card, often with your own card with your name on it. This means you can make purchases on that card, which will be reflected in your credit report.
- The Catch: Not all credit card issuers report authorized user activity to the credit bureaus. So, make sure to ask your parent's credit card issuer if they do before becoming an authorized user.
2. Open a Secured Credit Card
Secured credit cards are designed for individuals with limited or no credit history. They require a security deposit, which acts as collateral. This deposit is typically equal to your credit limit, so if you deposit $500, you can borrow up to $500 on the card.
Here's why secured credit cards are great for high schoolers:
- Guaranteed Approval: They are easier to get approved for since the issuer has a security deposit to rely on.
- Safe and Controlled: You're essentially borrowing your own money, making it less risky to get into debt.
- Building Credit: As you use the card responsibly and pay your bills on time, your payment history is reported to the credit bureaus, helping you build a positive credit score.
3. Pay Bills on Time
Even if you don't have a credit card, you can still demonstrate responsible financial behavior by paying your bills on time. This includes things like your cell phone bill, streaming services, and even student loan payments.
Remember, every missed payment can have a negative impact on your credit score. Set reminders for your due dates and make payments on time to show lenders you're reliable.
4. Learn About Credit
Take time to learn about how credit works and the importance of managing it responsibly. Explore resources from your school, local financial institutions, or online websites.
Understanding key concepts like interest rates, credit utilization, and how credit scores are calculated will help you make informed financial decisions.
5. Co-sign a Loan or a Lease
Co-signing a loan or lease can be a good way to build credit, but it comes with risks. Make sure your child is responsible and can handle the financial obligations before co-signing.
Here's how it works:
- Shared Responsibility: You are legally responsible for making payments on the loan or lease, even if the borrower fails to do so. This can significantly impact your credit score if they default.
- Building Credit: If your child makes payments on time, their history will be reflected in their credit report.
6. Add Your Child as an Authorized User
Adding your child as an authorized user on your credit card is another great way to help them build credit. This is often easier than getting them their own card, as they may not meet the minimum age requirements.
Here are the key things to remember:
- Age Requirements: Most credit card issuers allow authorized users as young as 13 or 15, but some have no minimum age requirement.
- Reporting: Make sure your credit card issuer reports authorized user activity to the credit bureaus, or it won't benefit your child's credit score.
- Shared Responsibility: It's important to ensure your child understands the importance of responsible credit card usage, as any late payments can impact your credit score.
7. Report All Possible Forms of Credit
While credit card payments are traditionally the biggest contributor to your credit score, other forms of credit also get reported to the credit bureaus. Make sure your child utilizes these options to build a robust credit history:
- Utility Bills: Once your child turns 18, they can open accounts for internet, cable, cell phone, or utilities.
- Student Loans: While student loans often don't require a credit check, ensure they make payments on time. This will help them establish a good credit history.
8. Encourage Them to Apply for a Student Credit Card
A student credit card is an excellent option for young adults who are ready to start building their own credit. These cards are often tailored to the needs of college students, offering rewards and benefits that are relevant to them.
Keep in mind the following requirements:
- Age: Your child must be at least 18 years old and have a proven source of income.
- Citizenship: Most student credit cards require U.S. citizenship, but some are available to international students.
Frequently Asked Questions
Here are some of the most common questions I get from students about building credit in high school:
Q: Why don't I have a credit score yet?
A: Your credit score is based on your credit history, which is built from your financial activity. If you haven't borrowed money or opened any credit accounts, you won't have a credit score yet.
Q: What determines a good or bad credit score?
A: Your credit score is calculated based on five factors: payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit (10%). Lenders use these factors to assess your creditworthiness.
Q: What is considered a good credit score?
A: A credit score between 670 and 739 is considered good, while a score above 740 is considered very good.
Q: How do I check my credit score?
A: You can check your credit score for free through websites like AnnualCreditReport.com or by using the services of your credit card issuer.
Conclusion
Building credit while you're still in high school is a smart move that can benefit you in the long run. Remember, it's not about rushing into opening tons of credit cards or taking on debt. It's about learning about credit, making informed decisions, and developing responsible financial habits.
Starting early, learning the ropes, and practicing good financial behaviors will set you up for success in the future, opening doors to better loan rates, lower insurance premiums, and even more favorable opportunities for renting an apartment or a house.
