How to Build Credit As a Teenager

Considerations for teens before building credit

Before teens can start building credit, they’ll generally need to learn about good financial habits and how credit works, and they might also need to get a job.

Open a 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 six, so a child can begin learning about finances, bill payments and savings long before they hit their teen years.

Many youth bank accounts also come with a debit card that’s tied to the bank account. Using a debit card can help teens learn 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.

Learn about how credit scores work

A credit score is a numerical representation of a person’s creditworthiness. A credit score is made up of several components, which are used to calculate your score:

You can typically check your credit score for free through an online bank account.

• Payment history (35%): Whether bills are paid on time
• Amounts owed (30%): How much of your credit you’re using in relation to your available credit limit, also known as your credit utilization ratio
• Length of credit history (15%): Factors in the age of your oldest account, plus specific account ages and how often certain accounts are used
• New credit (10%): Considers how many new accounts you’ve opened within a span of time
• Credit mix (10%): Having different types of credit, like credit cards and installment loans, can increase your score

Knowing how a credit score works can help teens manage their finances responsibly. For example, making on-time payments and maintaining a low credit utilization ratio can help teens build credit, whereas making late payments or maxing out credit limits can hurt their credit.

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: Credit Score vs. Credit Reports: What’s the Difference?

Get a job

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) 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 act, card issuers are prohibited from issuing unsecured lines of credit to consumers under age 21 unless the consumer has a co-signer or can prove that they can make payments.

That means 18 year olds generally can’t start building credit history without employment.

"[The Credit CARD Act] makes everyone wait three more years before they can establish credit, unless they want to get a job,” said John Ulzheimer, a credit specialist who has worked for FICO and Equifax.

While having a job won't build credit in itself, the Credit CARD Act permits issuing credit cards to teenagers who are 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.

7 ways teens can build credit

Here are some of the ways teens can start building their credit:

1. Become an authorized user

One way for teens to build credit is for a parent to add a teenager as an authorized user on their credit card. This can be a good move, but only if the parent uses credit responsibly on their end. When the parent adds them, the teen will be issued a credit card with their name on it. However, the parent doesn't actually have to give it to them for them to begin piggybacking off the parent’s credit history.

While being an authorized user can be a great way to establish credit, it isn't meant to be used long term.

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

2. Get a secured credit card

Teenagers with an income can apply for a secured credit card 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 will typically be $200.

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

3. Get a student credit card

Student credit cards are a type of unsecured credit card for college students. They’re typically available to consumers with limited or no credit history, and they tend to come with low credit limits. Some cards even offer cash-back rewards and no annual fee.

Still, this type of unsecured card will require a co-signer for people who are under 21 who don’t have any income. Also, note that most credit card issuers don’t allow co-signers or joint accounts, so it may be difficult to qualify for a student credit card until the student has a job.

4. Take out a federal student loan

John Ulzheimer said 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.

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

5. 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 car. While young people don’t 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.

6. Get a credit-builder loan

Of course, it never makes sense to borrow money unless you need to. As an alternative, you can look into a credit-builder loan, which is a type of loan that has consumers make payments into a savings account in their own name. These payments are then reported to the credit bureaus as if they were loan payments.

Most credit builder loans charge nominal fees, plus interest on the loan. You’ll get your money back at the end of the loan term, but the lender will typically keep the interest payments.

» MORE: How to Use a Credit-Builder Loan to Establish Credit

7. 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, which is free to use. With this service, a user can get credit for subscription services, utility bills and rent by reporting their payments, which will then be added to their Experian credit report.

For example, a parent could 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.

Jairo, a reviewer in Ohio, said that they increased their credit score by 40 points in the first few months of using the app. They also were able to link their bank account and cellphone payments to boost their score further.

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, remember that young people often model what they see. By using credit responsibly yourself, you can show your teen how to use credit and practice good financial habits.