For consumers who are just hitting college age, or even still in high school, building a solid credit history seems like the least of their concerns. But in today’s world, showing that you’re responsible with your money matters more than ever.

Sure, a good credit score will lead to better rates when it’s time to take out a car loan or mortgage. It can, however, also help you rent the apartment of your choice or avoid a substantial down payment when you set up your utility bill. Some employers even use credit scores to filter their pools of job candidates.

Therefore, obtaining a reasonable amount of credit early on and using it responsibly will pay off in the long run. Below are some of the best ways to get started.

Become an Authorized User

The most straightforward way to build your credit is by taking out a credit card and paying it down each month. Acquiring a Visa or MasterCard with sensible interest rates, however, can be tricky when you have no previous history. Some companies have special cards for college students, but these also have requirements many young people may not yet be able to meet.

Additionally, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 – a.k.a. the CARD Act – made it more difficult for younger Americans to get hold of their own plastic. An applicant younger than 21 years of age has to show that he or she has the financial means to handle his or her debt or get a parent or spouse to co-sign before becoming eligible to get a card. One way around this conundrum: Ask to become an authorized user on your parent’s card.

While this is a common first step into the world of credit, there are some potential hazards to consider. Your credit score will get a boost if your mom or dad pays the bill consistently. Yet if they don’t, your FICO score – the numerical expression of your credit history – will get bruised, just like theirs. Ask if they’re willing to share how much of the outstanding balance they pay off each month and whether they’ve missed any recent payments.

Keep in mind that the primary account holder is responsible for the entire balance, regardless of who incurred the charges. So if you request to become an authorized user, make sure you have a mutual understanding of how much you can spend and what types of purchases you can make with the card.

Consider Secured Credit Cards

There’s always a temptation for young adults to spend beyond their means, and it’s a lot easier to do so when you have your own credit card. A secured credit card helps consumers stay out of trouble. The borrower makes an initial deposit, which acts as collateral for the amount he or she borrows. Typically, the credit limit on your account is based on how much you put down at the start.

There’s another benefit to secured cards. Once you demonstrate that you can pay your minimum amount due for a period of time, some lenders allow you graduate to an unsecured card – look for this provision when you apply for the card. But even with these, the CARD Act still applies. So if you’re between the ages of 18 and 21, you’ll probably need to demonstrate your source of income and document your expenses. To learn more about these products, read Secured Credit Cards.

Get a Store Card

If getting a standard credit card proves difficult, you may want to think about applying for a store credit card, which is generally easier to obtain. You may be stuck with a higher-than-normal interest rate, although that won’t matter much if you carry a modest balance or pay it in full with each billing cycle.

Often, younger buyers decide to apply for several new credit cards, thinking that a larger amount of available credit will always help their ranking. According to Fair Isaac Corp., which computes FICO scores, this approach often has the opposite effect. Your best bet is taking out one or two of these cards and spending judiciously.

Use Your Rent to Build Credit

Two of the three major credit bureaus, TransUnion and Experian, keep tabs on your rent payments. So if you're already renting an apartment, try to get your name on the lease. Then, if you pay the bill on time, you have the opportunity to improve your creditworthiness.

There’s one important caveat: Building owners aren’t required to pass along your payment history to the credit agencies. While larger property management firms frequently do, individual landlords often opt out because of the time and expense involved.

The best thing you can do is ask. If your landlord doesn’t report your activity, you may want to pay your rent through a service such as ClearNow, WilliamPaid or RentTrack. When you use one of these third parties, you can select to have remittances appear on your credit report. For more on this topic, read Use Paying Rent to Boost Your Credit Score.

The Bottom Line

Credit scores can affect numerous aspects of your financial life, from getting better loan terms to securing a job. Building a strong track record takes time, so using credit responsibly from a young age has big advantages.

Related Articles
  1. Credit & Loans

    New Credit Scoring Forgives Small Debt

    FICO 08 means that certain types of old debt won't affect your credit score, but it's not all good news.
  2. Credit & Loans

    FICO Credit Score Changes – Will Yours Go Up?

    Your FICO score could rise due to a new way of scoring some debts – which could make you eligible for a lower interest rate on credit cards or loans.
  3. Credit & Loans

    Secured Credit Cards

    They're not just for people with a poor credit score. Secured cards also help students and internationals with no U.S. credit history establish credit.
  4. Credit & Loans

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  5. Credit & Loans

    The Top Credit Reporting Bureaus: How Different?

    Consumers who compare their credit scores across the three agencies may find that the numbers don’t always match.
  6. Credit & Loans

    Top Places To Get A Free Credit Score Or Report

    When's the last time you checked your credit report? With all the hacking out there, don't wait for the car dealer to find problems when you need a loan.
  7. Credit & Loans

    Use Paying Rent to Boost Your Credit Score

    Now, rent payments can work for you – not just against you – to affect your credit rating
  8. Credit & Loans

    Getting Your Kids Their First Credit Card

    Putting some plastic in your children's wallets may actually help them - if you do it right.
  9. Credit & Loans

    6 New Changes To Student Credit Cards

    The CARD Act of 2009 helps protect college students from piling up debt as they enter the workforce. We put together six items of the bill that should be welcome news to students and their parents.
  10. Credit & Loans

    10 Reasons To Use Your Credit Card

    There are several benefits to paying with credit instead of debit, if you use a credit card responsibly.
  1. Will getting a student loan deferral hurt my credit score?

    A student loan deferral lets you postpone making payments on your student loan for a period of time. Your lender may approve ... Read Full Answer >>
  2. How can you pay your Walmart credit card?

    Holders of Walmart credit cards can make payments on their balances due by mail, online or at Walmart and Sam's Club stores. ... Read Full Answer >>
  3. Is Apple Pay safe and free?

    Apple Pay is a mobile payment system created by Apple to reduce the number of times shoppers and buyers have to pay for goods ... Read Full Answer >>
  4. Can you use your Walmart credit card at Sam's Club?

    Consumers can use their Walmart credit cards to shop at Sam's Club. However, they cannot use their Walmart credit cards when ... Read Full Answer >>
  5. How can you cancel your Walmart credit card?

    Walmart offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. How to Close Your Walmart Credit ... Read Full Answer >>
  6. Does the Walmart credit card have an annual fee?

    The Walmart credit card does not charge annual fees to its cardholders. It does, however, have other fees associated with ... Read Full Answer >>
Trading Center