When should you start building credit?

The sooner you can begin building up your credit score, the sooner you reap the benefits. 

What is credit and why do you need it?

Your credit score reflects your “creditworthiness.” It signals to lenders that you can (or can’t) pay your debts off in time.

You need credit and a credit history to demonstrate your ability to pay your debts off. Without first building credit, you cannot get loans for big purchases, like a mortgage. You also can’t qualify for certain credit cards without a decent or good credit score.

The FICO credit score is what all credit lenders use. Here is a table of FICO credit score ratings:

The big-ticket question is: when do you start building credit?

When should you start building credit?

Don’t wait until after college to start building credit. If you can start as early as 18, go for it. You can even start younger than 18 if your parents want to add you on as an authorized user to their credit card.

You’ll want to shoot for somewhere in the 670-739 range, at least, before graduating college. It’s unlikely you’ll be able to reach a score of 800+ when you graduate unless you can take on substantial debt that you can consistently pay off or you can piggyback on someone else’s credit, as an authorized user on one of their cards.

If you’re wondering how to start building your credit, read on. A great list of approaches follows below.

How do you start building credit?

You start building credit by making purchases or having credit/loan purchases associated with you. More into that later. 

The most common way to build credit, and the quickest, is to get a credit card.

1. Apply for a secured credit card

A secured credit card requires a cash deposit and is a great option for those with no credit history or bad credit scores. Usually, after 12 months of use, you can upgrade to a new card with an unsecured line of credit. 

2. Become a co-signer for an unsecured card

If you need a larger balance than what a secured credit card can offer you, try to find someone with a good credit history that can co-sign on an unsecured credit card. The card would be yours to use, but that person's score would drop alongside yours if you were to miss payments and tank your credit card score.

With an unsecured card, you’ll have the benefits of reward programs and higher available credit.

Just make sure you pay your balance off each month, or your co-signer may experience a drop in their credit score. 

3. Become an authorized user on a friend’s card

Another great idea is to become an authorized user on a friend’s or family member’s card. You can start to use the same card as that person. The other person is responsible for the payments on the card.

This is an excellent way for people who are 18 or under to begin to build their credit history.

4. Pay your full balance on time every month

Make sure you consistently pay your balance in full on your credit card each month. It’s the best way to increase your credit score. 

Get into this habit right away to mitigate any future drops in your score.

5. Keep your utilization below 30%

Limit the use of your credit card to keep its utilization, or usage, below 30%. Your credit utilization looks at how much you use of all the credit available to you, across all of your credit cards, not just the new or recent ones.

Credit utilization is major factor reporting bureaus use to determine your score.

6. Have rental payments reported

If you pay rent to your dad, this will not go towards your rental history. It also won’t reflect on your credit score. That’s because it's not being reported. 

Even when you sign a lease and make payments to a landlord or real estate office, your rent payments aren’t automatically reported.

Use a reporting service, like Experian RentBureau or Rent Kharma, to have your rent payment history included in your credit report. 

7. Monitor your credit report for mistakes

There are free credit reports everywhere. You can sign up for daily, monthly, or yearly reminders for your credit report. 

It’s important to monitor your credit report to see if duplicate accounts were created in your name, accounts weren’t frozen or added that you didn’t request, and your score is reflected accurately.

Conclusion

There are plenty of ways to start building credit. Just remember: the sooner, the better.

Most people start with a secured card, but getting a co-signer is a common option too. Use your cards responsibly, making payments on time and keeping your utilization low. Consider getting your rent payments recorded by credit bureaus too.

Recommended Readings:

5 simple hacks to build your credit score in 2022

Millennials: This is how to build your credit score fast