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How to Start Building Credit as a Teenager

In this article, I discussed how the steps anyone can take to begin building their credit. In today’s article, I’ll discuss specifically how teenagers can begin building credit.

First, let's discuss some of the benefits of building credit at an early age. One big advantage as a teenager is the lack of immediate/essential expenses. Most teenagers aren’t handling major household expenses like rent or food, so there probably won't be a situation in which a teenager is forced to use a credit card. This decreases the chances of accumulating credit card debt. As a teenager, you'll probably handle any bigger expenses (ie. car payments) using cash, leaving credit for smaller purchases like take-out or snacks. The smaller the expense, the easier it’ll be to pay off, meaning missed/late payments are unlikely to occur.

Getting a credit card at an early age will also help you develop financial responsibility. If you have a couple years of experience using a credit card by the time you actually have to use it for bigger expenses, you’ll (hopefully) know what you're doing and (probably) won’t make mistakes or misuse it.

By beginning your credit history early on, you’ll be ahead of the curve when you become independent. This means that you’ll already have a couple years of credit history by the time you're out looking to buy a car or rent an apartment. If you have a history of responsibly handling credit, you’ll also have a higher credit score. With a high credit score, you’ll be able to get lower interest rates, so any loans you take out will cost less overall.

To begin building credit as a teenager, you’ll first need to have a conversation with your parents/guardians, as it's very difficult to get a line of credit while you're under 18. Tell them you want to start building credit now, and explain the advantages of having an established credit history. If they agree, they’ll have to add you to one of their existing credit cards as an authorized user.

An authorized user is someone who can use another person's credit card. As an authorized user, you’ll get a credit card in your name, but it’ll be linked to your parent/guardians account. This means that they’ll have to pay off any purchase you make using that card. Your parents/guardian can add you as an authorized user online or by calling their credit card company. Once you’re added as an authorized user, you’ll receive a credit card with your name in a couple weeks.

There are two main factors that build credit. The first is regular usage of the credit card. This means you need to actually use the card to buy something, so it can’t just be sitting around. You’ll only build credit history by using credit. Most big banks/creditors will report the activity of an authorized user to the credit bureaus, but you should call and make sure your specific card does too. If you responsibly use that credit card, your credit score will slowly start to increase even though you’re piggy-backing off your parents/guardian.

The second factor in building credit is paying off any money owed on the card, on time. This responsibility falls onto your parents/guardian, so make sure you're discussing your credit activity with them so there are no surprises.

These two factors also relate to using a credit card. Here are a few good guidelines you should follow to use your card responsibly.

The first is to only spend what you can afford to pay back. A credit card is not free money, and anything you buy using credit will have to be paid back, in full, in cash. As an authorized user, your parents/guardian will be paying off whatever you buy, so make sure you’re being responsible and not making any purchases that they wouldn't approve of.

The second is to always pay off the balance, or the amount you owe, on time. Missing/making late payments on a credit card will damage your history. This isn't your responsibility as an authorized user, so make sure whoever is paying off your credit card will do so on time and in full, otherwise, your credit will be damaged. Another good rule of thumb is to only use 1/3 of the limit on your card. You can read more about using a credit card and building credit in this article.

Once you have the card, there are a few routes you can take. If you’re able to keep your credit card, buy something using the card every month. It can be something small, like a pack of gum or a bag of chips. Even the smallest expenses are reported to the credit bureau, so as long as you're actually using the credit card to buy something every month, you’ll build your credit.

If your parents/guardians are worried about you having possession of the card (maybe they think you’ll be irresponsible with it), ask them to use your credit card to pay off a small monthly expense. This can be the electric/water bill, a Netflix subscription, or some other similar small, regular expense.

By doing this, you’re slowly building your credit history even though you may not have physical control over the card. You won't have to worry about purchasing something every month using the card to build credit, as the bill/subscription will be automatic. Additionally, the expense is probably something your parent/guardian was already paying for beforehand, but now, it's simply getting paid off with credit in your name. This means there's no added expense for them, and you get to develop a solid history of regular credit usage.

Becoming an authorized user is a great way to build credit as a teenager and learn good financial habits. Starting your credit journey early on can be very rewarding and give you a huge head start. Becoming educated on credit at a young age will set the foundation for financial stability and set you up for financial success.

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