The Best Ways for Young Adults to Establish Credit
iQuanti: After you turn 18, one of the best things you can do for yourself financially is to start building a rock-solid credit history. Here are some tips that young adults can use to get started.
- Open a Credit Card Getting a credit card and using it responsibly is a great way to show your creditworthiness. You can start by putting a few reoccurring expenses on your cards, such as your:
Cell phone bill Gas Groceries
In addition, you can benefit from setting up your account for automatic payments. This will ensure that you pay your bill on time and in full without any manual interaction.
- Get a Secured Credit Card For young adults who have trouble qualifying for a regular credit card, another helpful strategy is to apply for what’s called a secured credit card. Secured credit cards work the same as an unsecured credit card, except that they require a small deposit paid upfront. This deposit is used as collateral in case you fail to make your payments. Just like regular credit cards, secured credit card activity is reported to the credit bureaus. So even though you pay a small deposit upfront, you’ll still have the opportunity to establish a good credit history. Plus, you don’t have to worry about your deposit. As long as you make your payments on time and pay your balance, you’ll see it returned when you close your account or convert it to an unsecured card.
- Become an Authorized User If you have a parent or older sibling who will let you become an authorized user on their credit card, this can automatically help to build your credit history. Essentially, each time the primary cardholder makes payments, these payments will reflect in a positive way in your credit history as well. When another adult adds a young person to their credit card, it won’t hurt their credit score. However, it does give you the ability to make purchases without their consent. Obviously, you should never abuse their trust and only use the card when the primary cardholder allows it. A good compromise could even be that the adult adds you to the account and never gives you a card. Regardless of whether you personally ever make a payment, you’ll still benefit from their good payment history.
- Make Your Student Loan Payments Your credit history consists of more than just credit card usage. Young adults who’ve opened student loans in their names will also have the opportunity to demonstrate their ability to repay the loan. Just like any other credit line, the key is staying on top of your payments. Always make sure they’re on time and paid in full.
- Keep Up on Utility Payments Most young adults who live on their own have opened utility accounts (energy, gas, water) under their name. While these payments aren’t typically reported to the credit bureaus, they can be if you miss one, and the result will be a negative mark on your report. Therefore, the best thing is to keep up with your payments. Pro tip: If possible, set up your utility bills to be automatically paid from your regular or secured credit card. That way you’ll get a double benefit of paying your utilities as well as using your credit (which should also be automatically paid). Source: iQuanti