There’s never a bad time to start building good credit, but there is definitely a good time to start: as early as possible. The earlier someone starts building credit, the easier it will be to seek credit as an adult. The question is: at what age can you start building credit?
Whether you want to start building your own credit or whether you want to help your child get a head start on preparing for their financial future, this article is for you. We answer the questions of when you can start building your credit, how to build credit for a minor, and how to build your child’s credit.
Obviously, most children and teenagers don’t have access to credit cards or other credit products, for good reason. However, this doesn’t mean that teens cannot or should not build credit. In fact, quite the opposite is true.
Let’s look at an example to understand why it’s important to start building credit even before turning 18. If you’re an adult and you’ve never used credit before, but you now need an auto loan, what do you think is going to happen when you go and apply for a loan?
Since you don’t have a credit history at all (i.e. you are “credit invisible“), lenders have no idea if you can responsibly manage credit. Because of this, chances are, you’re probably going to get denied. If you do somehow get approved for an auto loan with no credit, it’s likely going to have a very high interest rate since you will be perceived as a risky borrower.
The moral of the story is that you can’t wait until you need credit to start thinking about building credit. You need to start building up a positive credit history early on so that you can have that good credit to rely on when you eventually end up needing it.
Beyond the issue of having access to credit when you need it, having good credit may also be important when entering the workforce. Many employers conduct background checks and check the credit reports of prospective hires, and having a solid credit history will reflect positively on applicants.
Having already established good credit will also come in handy when shopping for insurance, applying to rent a home, setting up utilities, and maybe even buying a cell phone plan. All of these industries typically conduct credit checks on applicants before getting into business with them.
You can find out more about the consequences of not having enough credit history in our article, “What Does It Mean to Be Credit Invisible?”
To build credit, of course, you need to use credit products. This is why many people wait until they are well into adulthood to try to start building credit, which, as we just learned above, is a mistake because it can hold you back when you actually need to get credit.
However, we all know how difficult it can be to get approved for credit when you don’t have yet have a credit history that shows creditors that you can manage credit responsibly. Lenders don’t want to take on the risk of lending to someone whose future behavior is hard to predict.
So how do you start building your credit without a credit history?
One option is to apply for a secured credit card, which involves putting down a security deposit as collateral against the credit limit of your card. Lenders can issue these cards to consumers with no credit without taking on as much risk since they can keep the deposit if you default on payments.
Another strategy is to apply for a credit-builder loan, which works in the reverse order of a traditional loan: first, you make all the monthly payments toward the balance of the loan; then, once you have finished making the payments, you receive the loan disbursement.
Since you have already fronted the money, lenders don’t have to face the risk of you not being able to pay back the loan. Because of this, as long as you have enough income to make the monthly payments, your chances of getting approved for a credit-builder loan are much higher than if you were to apply for a traditional loan.
If you’re younger than 21 and do not have much income, it can still be a challenge to get approved even for started credit products. Consider inquiring at your local credit union, as credit unions are typically willing to be more flexible with customers than big banks.
There’s an easier way to start building credit, though. If you can’t get approved for any primary accounts on your own, or if you want a “shortcut” to building credit without having to wait for your primary accounts to age, you can build credit fast by piggybacking on someone else’s credit.
The first two of these three piggybacking methods involve opening new primary accounts, which means you have to wait a few years for the accounts to gain seasoning before they start to help your credit in a more significant way.
On the other hand, piggybacking as an authorized user means you can be added to an account that already has plenty of age and on-time payment history. That’s why it’s one of the most convenient ways to start building credit fast.
Unfortunately, financial literacy is usually not emphasized in schools, so the responsibility of educating children about credit and helping them build credit falls primarily to parents and guardians.
It’s important to not only know how to help build your child’s credit but also to teach them the basics of financial literacy so that they will one day be able to manage their finances and their credit on their own.
Lay a solid foundation by teaching them about budgeting and saving. If your child is old enough to work, that can be a good opportunity to see how they manage their income.
Then you can move on to the world of credit. Your child needs to have an understanding of how the credit system works before getting a credit card or they could be headed for disaster.
In a survey of college students conducted by U.S. News in August of 2019, about 35% of students surveyed said they were not taught about fundamental financial topics before getting a credit card. A lack of understanding about how credit works and how to use it responsibly can easily lead to getting deep into debt and a lifetime of financial troubles.
In the same survey, 13% of students said they had over $8,000 in credit card debt, and almost 23% said they didn’t even know how much credit card debt they had. No one wants that to happen to their child, so make sure your kid knows how to use credit cards properly before they get one.
But beyond teaching your child the fundamentals of credit, can you build your child’s credit even before they get a credit card or loan of their own?
While helping them learn the ins and outs of the credit system, it’s also smart to help them get a head start on actually building credit via credit piggybacking, which means becoming associated with another person’s credit account.
If you have good credit, consider adding your child at an early age as an authorized user to one or more of your credit cards that are in good standing. If they’re not yet ready to use the account responsibly, you don’t necessarily have to give them access to a credit card. Alternatively, if you want to let them use a credit card, some credit card issuers may allow you to set spending limits for authorized users.
Being an authorized user on the account will still help them even if they don’t have spending privileges on the card. The positive payment history of that account will usually be reported on the authorized user’s credit profile, which can help kick start their credit score.
Unfortunately, according to the U.S. News study, about 75% of the college students that participated in the survey said they did not become an authorized user on someone else’s account before getting their own credit cards. That means they likely missed out on the lower interest rates and other perks that come with having an established positive credit history.
This statistic is not surprising. As we learned in our article, “What Happened to Equal Credit Opportunity for All?” equal credit opportunity is sadly not a reality in our country. Wealth disparities and historical discrimination prevent many Americans from being able to establish good credit and get ahead in life.
Those with wealth and financial education commonly use the authorized user piggybacking strategy to help their children build credit, while at the same time there are many young people who don’t have parents or loved ones that can help them establish credit. The tradeline industry helps to address this problem by providing access to authorized user tradelines to all consumers.
It’s clear that the authorized user strategy is an ideal way to help your child build credit. But when can you actually start building credit? Is there a minimum age requirement to be an authorized user? Can you start building credit before 18, for example?
It can be difficult for young adults to get approved for a credit card on their own since credit card issuers are required to check applicants’ income before issuing them credit. However, by using the authorized user credit piggybacking strategy, young people can start building credit earlier than you may think.
A survey by creditcards.com revealed that half of the major credit card issuers surveyed, including Bank of America, Capital One, and Chase, had no minimum age requirement for authorized users! That means that with many of the most common credit cards, you can add your child as an authorized user at any age.
Credit card companies that do have age requirements, such as American Express, Barclays, Discover, and US Bank, typically impose a minimum age limit that is between 13 to 16 years old.
Check with your credit card issuers to see what the minimum age requirement is for authorized users on your cards.
In addition, check with your credit card issuers to see whether they report authorized user information to the credit bureaus since not all banks do. If you’re purchasing a tradeline, however, you don’t have to worry about that, since all of the banks we work with do report to all three major credit bureaus.
It’s a smart idea to help your child build credit early so they can start their adult life on a financially sound footing. If you have good credit yourself, the easiest and fastest way to build your child’s credit is by adding them as an authorized user to one or more of your credit cards that have a perfect payment history.
Kids can become authorized users at any age with some credit cards, while there is a minimum age requirement of 13 to 16 years with other cards. Check to see what your bank’s policy is.
Unfortunately, many people do not have access to this credit-building strategy. If you are one of those people, consider purchasing a seasoned tradeline when it comes time for your child to start establishing a credit history.
It’s never too early to start building good credit!
Did your parents teach you about credit at a young age? How do you plan to help your child build credit? Share your thoughts below!