Waiting until after you graduate college to start working on your credit journey seems to be the norm nowadays, but every month you put it off is another month it’ll take to move the process forward. Credit is a crucial piece of your financial picture.
The sooner you get started learning about credit reports and scores and how to boost them, the easier it will be to get your finances in order when you’re ready to venture off on your own.
High school is the perfect time to start thinking about the future. You’re already planning your career and adult goals, so including your financial goals should be a natural step.
It’s not too early to start building your credit before you graduate so that you can build upon what you started once you leave high school.
Why is it Important to Start Building Credit Early?
You’re probably thinking, “Why in the world do I need to build credit as a teen? Isn’t that too early?”. You might still be in your parents’ home, but you’ll be off to college or moving into your own house before you know it.
Your future self will need a decent credit score and stable credit history for everything from landing a dream job to purchasing a new car or home.
Your credit history can affect things like your:
- Car insurance premiums
- Ability to rent an apartment or home
- Qualification for a credit card or bank account
- Ability to borrow student loans
- Desire to start a business one day
- Required down payments for cars, utilities, cell phone service, etc.
Nearly any bill or financial service will need to know about your credit history in some form. Credit can take a while for anyone to build. Once you graduate high school, you’re on the fast track toward your future, you’ll be busy, and life could quickly get in the way of you focusing on building your credit.
Unfortunately, your 20’s and 30’s are when you need credit the most! The quicker you jump on board with making it a priority, the better off you’ll be when it comes time to borrow.
Ways to Build Credit While You’re Still in High School
Once you reach driving age is the perfect time to start thinking about your credit and how you can jump-start a solid history. With the support of your parents or guardians, here are some of the things you can do now:
1. Get Your Own Checking and Savings Accounts
Your first – and possibly the easiest – step in building credit should be to open a checking and savings account with a bank.
Not only does this help you create a relationship with your chosen bank, but it can make it easier to apply for credit when you’re ready, give you a place to store your money you get from a job, and get you used to how banking and handling your finances works.
Opening accounts with a bank won’t have a direct impact on your credit, but most creditors want to know how you juggle your income and expenses.
Some credit applications will, for this reason, ask you for your bank account information, just to make sure you don’t consistently have a negative balance or overdraft fees.
2. Start Working
The natural next step would be to start working! The only way you can manage money is if you have money to manage. Plus, proving to creditors that you can hold down a job for a while can help them decide about extending credit to you.
The longer you stay at one position, the better you look to lenders.
Most teens don’t stay at their first job their whole lives and lenders know this. They’re not necessarily looking for that. If you can stick with the same job through the remainder of your time in high school, though, you’ll show lenders that you’re a loyal employee dedicated to earning an income.
3. Become an Authorized User on a Parent’s Credit Card
By law, most credit cards are designed for legal adults, age 18 and up. High schoolers typically aren’t 18 until senior year or after they graduate. Instead of waiting for the big 18th birthday to hit to start building credit, you can do it by becoming an authorized user on a parent’s credit card account.
Authorized users don’t get the full credit benefits as the primary account holders (your parent) do but being one can still help. You’ll go on your parent’s account and have access to the credit limit they have or one they set for you.
Use the card responsibly and that information goes to the credit bureau(s) the company works with, meaning your name will also be included.
For the best impact on your credit, make sure the card reports to all three credit bureaus – Experian, TransUnion, and Equifax), so that each one has some useful information about you to get you started on the right foot.
4. Apply for a Secured Credit Card
Another credit card option for teens is to get a secured card. Unlike an unsecured card that extends you a credit limit based off your creditworthiness, a secured card’s credit limit comes from what you pay for that limit. If you want a $500 credit limit, you’ll need to pay the card company $500.
It seems counterintuitive, but the point is to prove to the bank that you can handle the card responsibly. Usually, after one or two years, the bank will remove the secured line and give you that same amount as an unsecured credit line (Bonus: You’ll get your payment back too!). Some secured cards allow teens younger than 18 to apply.
5. Open a Credit Account Designed for Teens
Creditors know how vital it is for teens to start establishing credit, which is why some companies design accounts that help them do just that.
Some credit cards are specifically for teens ages 14 to 17 to jump-start a responsible credit usage history, like the Teen Visa Platinum from DFCU Financial.
The card comes with a credit limit of $250 to $1,000, based on a parent’s creditworthiness (they’ll have to co-sign on the application).
You’ll have some restrictions, like a $60/day cash advance limit, but they’re all focused on helping you use your card responsibly and learn how to manage money.
6. Get a Co-Signer for Your Car
Instead of having a parent get an auto loan for a car and paying them back every month from your work income, you should consider getting the loan in your name and having them co-sign instead.
Of course, this will only work in most states when you’re at least 18 because signing for the loan is the same as signing for any other legally binding contract, which you need to be of legal age to do.
When you first start driving, it might be a good idea to get a clunker that gets you from point A to point B that you can pay off before you turn 18. Then, you’ll be free and clear of the vehicle’s cost and can trade it in for something better that you’ll have your name on.
You’ll likely still need a co-signer, but that’s a good thing because it’ll help you qualify for a better loan.
7. Keep a Clean Driving Record
Did you know that the way you drive can affect your creditworthiness? Although accidents and violations don’t make their way onto your credit report, all the fees surrounding them can if you can’t afford to pay them on time (and they can be expensive!).
Just like bills, unpaid tickets and court costs go directly onto your credit report.
Your auto insurance company also checks your credit report to determine your insurance premiums. This is why younger people with no credit tend to have higher premiums than adults with established credit history and good driving records.
When you drive safely and obey the rules of the road, you’ll see your insurance premiums gradually decrease as you get older.
8. Be Smart About Your Credit Usage
Any credit that you do obtain as a teen is what will help you get better opportunities later, but only if you’re smart about using it.
If you get a secured card or are on your parent’s account as an authorized user, be sure to use that credit, but never more than you can afford to pay off that month.
Say you spend about $50 in gas each month. Make sure you set aside $50 for gas from your paycheck, make all gas purchases with your credit card, and pay off that full $50 balance at the end of the statement period.
Not carrying a balance is the smartest way to use your card because you’ll avoid racking up interest on your purchases and the bank will see that you care about keeping your credit intact.
9. Diligently Check Your Credit Score and Report (For Free!)
Even adults forget to keep an eye on their credit report and score, so don’t feel bad if you fall into the trap too. Every consumer is allowed one free credit report every year from each of the three credit bureaus, so you can check each report against each other for discrepancies.
Get that report! AnnualCreditReport.com is endorsed by the government and gives you a simple way to obtain your copies.
You can also use free services like CreditKarma or CreditSesame to monitor your credit score and get advice about ways to boost it. Check out this article for extra tips for other ways to monitor your credit.
Best Ways to Continue Building Credit After You Graduate
After graduating high school, you’ve already reached – or are close to reaching – legal age, so it’s time to put your finances at the forefront.
The more you do now to create a strong foundation for your credit, the easier it’ll be for you purchase a car, home, insurance, and other critical adulting things later.
10. Ask Someone to Co-Sign Private Student Loans
Most private student loan companies require a co-signer because fresh-out-of-high-schoolers don’t tend to have a lot of credit built up.
A co-signer, like a parent, guardian, or other trusted family member or close family friend, can boost your chances of qualifying for a pricey loan, which most student loans are.
You might be able to qualify for federal student loans, which don’t require a co-signer, but private student loans have some benefits that can help you in the long run, like:
- Interest rate discounts (some lenders have them!)
- More consolidation options with private consolidation loans
- Interest is tax-deductible
- The ability to cover all your education expenses
Some lenders also allow your co-signer to come off the loan eventually after you build credit and have a steady history of timely payments.
11. Borrow the Absolute Minimum
Don’t let yourself get caught in the trap of loans, though, no matter how helpful they are right now.
You might be tempted to ask for more than you need to pay for things like food and entertainment you also need while away at college, but it’s best to borrow only what you need to cover tuition and, if necessary, books.
Be sure to apply for any grants and scholarships for which you might be eligible. Visit the Federal Student Aid website to get more information about free money for college.
Then, get a full breakdown from your chosen college of the tuition and fees you’ll have for the year and borrow what’s necessary after grants and scholarships.
12. Pay Student Loan Interest While in School
Interest is one of the things that sneaks up on you fast while you’re in college (probably even faster than those pounds most people pack on!). Most experts agree that paying interest on your loans when you’re still in school is the incredibly financial-savvy thing to do.
Many students see their time in school as a free pass on paying off loans because most lenders keep them in deferment until you graduate.
However, paying accrued interest can keep your balance lower and reduce your monthly payments you’ll need to start making once you complete your degree.
13. Get More Credit Cards
It’s a good idea for anyone to have two or three go-to credit cards that they can rely on in an emergency and for building credit. Now that you’re of legal age, you can start thinking about opening new accounts for cards that make the most sense for you.
Word of advice: Don’t apply for cards all at once! Doing so can ding your credit for too many inquiries in a short amount of time. It makes you look desperate for credit. Instead, wait about six months between each application, so you don’t affect your score.
Here are some of the best types of cards for recent graduates:
Student Credit Cards
Some credit cards are specifically for students with little to no credit history. They’ll typically start off with a low credit limit around $200 to $500 with the opportunity for an increase with good payment history and boost in income.
Retail and Gas Credit Cards
If you usually get gas at the station near your campus or shop for groceries and other essentials at Walmart, it might be wise for you to open a credit card account with those retailers.
The interest rates tend to be high on store-specific cards, but they also can have excellent rewards for shopping with them.
Pay off your balance each month and you won’t need to worry about piling interest.
Reward Credit Cards
Students who have decent credit started or can have a co-signer on their account should consider rewards cards that give cash back or points on purchases. Travel rewards could even come in handy if you plan to make a long trip back home for school breaks and summer.
14. Use Your Credit Cards Regularly, But Wisely
It’s crucial to remember to only use your credit cards for what you can afford to pay back, ideally, before the next billing cycle.
Credit cards are helpful for emergencies and high-priced items you can’t afford right now, but you’ll also end up paying a lot of interest with your limited credit history if you put a large purchase on them.
If necessary, you can use your cards for essentials, like books, if you make a pact with yourself to pay them off within three months to reduce interest. Always pay more than the minimum payment, which shows creditors that you know the importance of paying off a balance.
15. Keep Track of Your Bills
People forget about a bill sometimes. It happens. But that one missed payment can go straight on your credit report, depending on how lenient the company is.
Keep a calendar dedicated to all your bills (be sure to put your credit card payments on it!) and try to pay them a week ahead of time to stay on top of them.
16. Actively Work to Improve Credit
Now that you know how credit works, you need to continue to improve yours:
- Sign up for free credit monitoring services and check your score every month.
- Avoid co-signing for friends.
- Space out any applications for loans or credit cards.
- Pay debts as soon as possible.
- Set up payment reminders for bills on your phone.
- Shop around for the best rates when you need a new loan or card.
Congratulations: You’re moving into the world of adulthood and can now have credit to call your own. It’s exciting and a bit scary at the same time.
By taking the advice above to build and manage credit during and after high school, you should get a solid start to a healthy future with credit.