How to build credit as a teenager

Building credit early can instill good financial habits

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Building credit early in life can make a big difference when it’s time to use credit as an adult. The length of your credit history and your payment history are two factors that make up your credit score — so when you build credit early and responsibly, you get a leg up on both.

That said, the Credit CARD Act of 2009 makes it more difficult for young people to get a credit card before the age of 21, unless they meet specific requirements. According to the Federal Deposit Insurance Corporation (FDIC), card issuers are prohibited from issuing unsecured lines of credit to consumers under age 21, "unless the consumer has submitted information showing an independent ability to make the minimum payments."

So, how can teenagers build credit despite the rules laid out in the Credit CARD Act? Fortunately, there are several strategies to help young people get a head start on building credit for the future.

Key insights

  • Individuals 18 and up can qualify for their own credit card provided they have a steady income and the independent ability to make payments each month.
  • There are other ways for young people to build credit, including becoming an authorized user on a parent or guardian's account or using an app like Experian Boost.
  • In addition to building credit, young people can benefit from learning positive financial habits like tracking their spending and staying ahead of monthly bills.

Get a job

The fact that 18-year-olds cannot build credit history without employment is "the shortsightedness of the CARD Act," said credit expert John Ulzheimer, who has worked for FICO and Equifax. "It makes everyone wait three more years before they can establish credit, unless they want to get a job.”

While having a job won't build credit in itself, the Credit CARD Act permits issuing credit cards to teenagers 18 and older if they have income. So, if a teenager starts bringing in a steady paycheck, they can apply for a credit card or a loan to build credit.

Open a youth bank account

Opening a teen bank account can help get young people on the path to good credit and responsible financial habits. Not only that, but many youth bank accounts are open to kids as young as 6, so a child can begin learning about finances, bill payments and savings long before they hit their teen years.

While having a youth bank account (and potentially a debit card) doesn't actually build credit, it does teach kids how to keep track of their balance and creates a relationship with a bank.

Use a debit or prepaid card

Many youth bank accounts come with a debit card that is tied to the bank account, but it's also possible to get teens started using plastic with a prepaid debit card. Either way, having your teen use a card of any kind can help them learn important financial lessons.

For example, using a regular or prepaid debit card teaches teens that their purchases will be deducted from their balance, and that they need to keep track of debits to know how much money they still have.

Teens can also learn the consequences of running out of money, either because they didn't track their account balance or they chose to spend all they had.

Report other forms of credit

There are a few different apps that can help anyone build credit through regular bill payments, but the most popular one is Experian Boost. This app lets users get credit for subscription services they pay, utility bills and even rent by reporting these payments to the user's Experian credit report.

Experian Boost is popular because it's free to use. A family with a teen could easily put a household bill in their teen's name and connect that bill to the app, thus helping them build payment history on their Experian credit report early on.

According to this consumer's review, linking their bank account and cellphone payments to Experian Boost enabled them to increase their credit score by 40 points in just three months.

Become an authorized user

Adding a teenager as an authorized user on your credit card can be a good move, but only if you use credit responsibly on your end. For example, making on-time payments and maintaining a low credit utilization ratio can help your teenager build credit as an authorized user, whereas making late payments or maxing out credit limits can actually hurt your teen's credit in the long run.

When you add a teen as an authorized user on your credit card, they are issued a credit card with their name on it. However, you don't actually have to give it to them for them to begin piggybacking off your credit history.

Ulzheimer says that while using the authorized user approach is a great way to establish credit, this strategy isn't meant to be used on its own for the long term.

"Lenders and scoring models have devalued authorized user accounts because everyone knows you're not liable for the management of the account," he said. "So, to some extent, it's credit but with training wheels."

Take out a federal student loan

Ulzheimer notes that taking out student loans to pay for college leads to establishing credit whether the borrower is trying to or not. This can be a major boon for young people, since federal student loans in particular can be taken out by borrowers with no credit history or even imperfect credit.

That said, Ulzheimer says it's important to remember that student loan disbursements are reported to the credit bureaus as separate loans. Also note that late payments on student loans can eventually lead to a loan going into default, which can have dramatic, negative impacts on a person's credit score.

Co-sign a private loan or lease

Getting a private loan or lease, or co-signing alongside a parent, can help young people build credit. The teen's payment history will be reported to the credit bureaus, and the loan type will bolster their credit mix and lengthen the average age of their credit history.

The most common types of borrowing for teens are loans for higher education or a loan for a car. While young people do not need parents to co-sign on most federal student loans, co-signers can pave the way to a teen getting approved for a private student loan or an auto loan.

Of course, it never makes sense to borrow money unless you need to. With that in mind, you can look into a credit-builder loan — a type of loan that has consumers make payments into a savings account in their own name.

While credit builder loans don’t actually borrow money, the payments made to the savings account are reported to the credit bureaus as if they were loan payments.

Note that most credit builder loans charge nominal fees, plus interest on the loan. For example, a credit-builder loan from Self with a $35 monthly payment for 24 months would set you back a total of $116 in charges over the course of two years.

» MORE: Co-signing a loan: pros and cons

Get a secured credit card

Teenagers with an income can apply for secured credit cards on their own at age 18. These cards require a cash deposit as collateral, which typically ends up being the amount of available credit on the card. For example, if someone puts down a $200 deposit to open a secured credit card, their new line of credit is typically for $200.

These cards are easy to qualify for with no credit history, and many offer rewards with no annual fee. Most importantly, secured credit cards report balances and monthly payments to the credit bureaus, thus helping you build credit through responsible use.

Get a student credit card

Student credit cards are a type of unsecured credit card geared to teenagers who are in college. This type of card is typically available to consumers with limited credit history, and it tends to come with low credit limits and basic perks.

Some student credit cards are even offered to students with no credit at all, and many offer cash-back rewards with no annual fee.

That said, this type of unsecured card will require a co-signer for those who are under the age of 21 with no income. Also, note that most credit card issuers do not allow co-signers or joint accounts, so it may be difficult to qualify for a student credit card until the student has a job.

Maintain good financial habits

Finally, teenagers and their families will need to make sure good financial habits are deeply ingrained before adulthood. For the most part, this means ensuring all payments are made on time, and being diligent about not overborrowing or maxing out credit limits.

Young people should also get in the habit of tracking their credit scores and progress over time. That way, they can keep an eye on their score and watch out for problems while also cheering themselves on as their score increases into the "good credit" range over time.

» MORE: Best credit monitoring services

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    How young can an authorized user be?

    The minimum age for authorized users depends on the company that issues the credit card and its specific guidelines. While some card issuers do not have a minimum age, others set the minimum at age 13 or 15.

    Do minors have a credit score?

    It's possible to have no credit score at all if you have no credit history. Minors who do have a credit history based on authorized user status or joint account status will have information on their credit reports and a score of their own.

    What credit score do you start with?

    With both the FICO and VantageScore scoring models, the minimum credit score starts at 300.

    Bottom line

    Helping your teen build credit from a young age can give them a leg up when they want to rent an apartment on their own, finance a car or even purchase their own home. Providing them the chance to learn positive financial habits early on can also instill strong values and a mindset for growth that can last their entire lifetime.

    While any of the tips in this guide can help your teen build credit and confidence, you should also remember that young people often model what they see. By using credit responsibly yourself, you can show your teen the way.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. FICO, " What's in my FICO Scores? " Accessed March 16, 2023.
    2. Federal Deposit Insurance Corporation, " FDIC Newsletter: ECOA - Understanding Age-Based Discrimination in Credit Card Lending ." Accessed March 16, 2023.
    3. Federal Trade Commission, " Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) ." Accessed March 16, 2023.
    4. Experian, " Experian Boost ." Accessed March 16, 2023.
    5. U.S. Department of Education, " Eligibility Requirements ." Accessed March 16, 2023.
    6. U.S. Department of Education, " What happens if I don't pay back my student loan? " Accessed March 16, 2023.
    7. Experian, " Should You Add Your Child to Your Credit Card as an Authorized User? " Accessed March 16, 2023.
    8. Consumer Financial Protection Bureau, " How do I check to see if my child has a credit report? " Accessed March 16, 2023.
    9. Experian, " What Is a Good Credit Score? " Accessed March 16, 2023.
    10. Equifax, " What Is an Authorized User on a Credit Card? " Accessed March 16, 2023.
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