Table of Contents
- The earlier you start building your credit, the sooner you can establish a good score and open doors to better borrowing terms
- To get a credit card at 18, you’ll need an independent income or a co-signer with good credit who is 21 or older
- You can also explore other options for building credit at a young age, such as becoming an authorized user on a parent’s account or taking out a credit-builder loan
- Once you open your first credit card, it’s important to make payments on time, limit your spending, and monitor your credit reports
Time is many things: a teacher, a healer, an ever-flowing stream. In poetry and song, time plays innumerable roles in our lives. But when it comes to building your credit (and many other financial matters), time is one thing: an ally.
The longer you maintain a credit history and practice smart borrowing habits, the better your credit will be when you get older. And good credit will unlock countless doors on your journey toward financial freedom. If you open a credit card at age 18 and handle it responsibly, you set the stage for better loan terms, lower interest rates, and many other benefits down the road.
That said, there are some things to know about opening a credit card when you’re 18. Read on to understand the rules and how to be smart with this big financial step.
What Is Credit, And Why Does It Matter?
When lenders refer to your credit, it’s a shorthand for your creditworthiness, or your risk level as a borrower. This is based on your history of borrowing and paying back loans, credit card balances, and other forms of debt. Your credit is a snapshot of how reliable you are at handling debt, and that impacts the terms lenders will offer you.
Let’s use credit cards as an example to demonstrate how your credit history works. When you open a card, the issuer will typically begin reporting your monthly balance and payments to the three major credit bureaus — Experian, TransUnion, and Equifax. Key information will go on the credit reports these bureaus issue, and factors like paying on time or keeping your credit balance low can help you build a better credit score.
Again, though, time is of the essence. It takes years of good habits to build an excellent credit score. The longer you have your accounts open and , and the better the mix of accounts you build over time, the more it will improve your credit. By establishing credit at 18, you give yourself a jumpstart on this process.
Credit Terms Demystified
As you start to build your credit, you’ll encounter quite a few terms that can be confusing — but understanding them will help you in your quest to establish a strong credit history. Some of the most common ones include:
- Credit report: This is a summary of your recent borrowing history issued by each credit bureau, showing information like open accounts, outstanding balances, late payments, delinquencies, accounts in collections, and bankruptcies.
- Credit score: This translates your borrowing history into a metric that lenders can use to assess your risk level on a scale of 300–850. There are multiple credit scoring models, but a good score generally falls above 670.
- Credit mix: Lenders like to see that you have a mix of different types of debt, including revolving loans like credit cards or lines of credit and fixed installment loans like mortgages and auto loans.
- Billing cycle: For revolving debt, you’ll pay off your balance on a monthly billing cycle. At the end of the period, you’ll receive a statement of all charges made with a summary of your balance and payment due date.
- Principal balance: This is the amount you owe on a loan. On a credit card, it’s the amount you charge during a given billing cycle, plus any previous outstanding balance and interest earned.
- Minimum payment: On your billing statement, you’ll see a minimum amount you must pay to avoid a late payment fee. This is only a small percentage of your balance, and you’ll have to pay interest on any portion of your balance not paid by the due date.
- APR: Short for annual percentage rate, this is a summary of the rate you pay on any unpaid balances. It’s important to understand that this compounds over time — if you accrue interest and don’t pay it off, you’ll continue to accrue interest on both the unpaid balance and the interest you’ve already accrued.
- Credit utilization: This measures your outstanding principal balances as a percentage of your credit limit on revolving debt. A number below 30% is ideal — in other words, if you have a $10,000 limit, you should keep your balance below $3,000 each month.
The Challenge Of Getting A Credit Card At 18
Before you’ve opened a credit card or had your name attached to a debt in some way, you don’t have a credit history or credit score. That can make it tricky to open a credit card at 18, as lenders will only see a big question mark when they try to pull your credit.
That’s not the only roadblock you’ll face at this age; there are legal barriers, too. Under the CARD Act of 2009, card issuers aren’t allowed to offer accounts to borrowers under the age of 21 without a cosigner who is at least 21 years old or proof of an independent income.
If you have someone with good credit who is willing to cosign and share the risk, that’s great. Otherwise, you’ll need an independent income, and your options may be more limited due to a lack of borrowing history. In that case, you may need to consider a student credit card, which has more lenient requirements and comes with a lower credit limit and higher APR.
Secured credit cards are also an option. These cards are usually open to borrowers with no credit or poor credit, as you’ll put down money up front to cover your spending. Whichever option you choose, look for borrowing terms you can work with, such as no annual fees, a reasonable limit, and the lowest APR possible. If you can get a card with rewards perks, that’s a nice bonus.
Other Ways To Build Your Credit
Getting a credit card isn’t the only way to build credit when you’re young. Even children under 18 can become authorized users on their parents’ accounts. Most credit card issuers allow this, and many have no minimum age requirement. This is a great way to start building credit while learning about healthy borrowing habits.
Credit-builder loans are another option for borrowers who are at least 18 years old. These loans work differently from traditional loans in that the lender only gives you your money after you’ve repaid the loan (or as you repay it). The main purpose here is to help you build credit rather than provide funds for an urgent financial need. There are fees involved, too, so it’s not always the best choice. However, as long as your lender reports your payments to the credit bureaus, it can be an effective way to build credit.
Being Smart With Your Credit And Finances
Once you have your first credit card, your credit history is in your hands. Making prudent financial choices and building strong habits from the get-go will set you up for long-term success.
On the front end, it’s important to ensure you can handle your payments every month. This requires good budgeting and savings, so you understand your limits and can spend within your means. When you plan, you can avoid impulse purchases that can set off a downward debt spiral.
In terms of handling your new credit card, there are two things you can do to get on the fast track toward good credit: Always pay on time, and keep your balance below 30% of your limit. These two factors have the greatest impact on your credit score, and consistency here will go a long way.
Finally, try to pay your balance in full every month. If you only make the minimum payment, interest will accrue quickly, and you’ll soon find yourself drowning in credit card debt. This is a common pitfall for credit card holders, and it leads to all sorts of debt troubles down the road.
Keeping Track Of Your Credit
As you build your credit, it’s important to keep track of your progress. You can obtain at least one free copy of your credit report from each bureau every year at AnnualCreditReport.com, and many credit card issuers and banks now offer free credit monitoring services to help you keep an eye on your score.
When you review your credit reports, pay attention to your personal information and the data reported by lenders. Make sure your personal information is current and accurate, and that all account information is correct. This is critical to ensure your history is accurate, and it helps you catch any signs of identity theft or other suspicious activity. You should promptly report errors directly to the credit bureaus.
Building Credit Takes Time
Building credit is a long game. If you start at 18 (or even earlier), you’ve got a great head start. By securing your first credit card and practicing good borrowing habits, you can slowly work toward a strong credit score — and open up plenty of financial doors in the future.
Just remember to be patient and focus on establishing credit one building block at a time. Be consistent with on-time payments and don’t spend beyond your means, and you’ll be well on your way.
Frequently Asked Questions (FAQs)
How Young Is Too Young To Build Credit?
It’s never too early to start building credit. Even though children can’t open their own cards before age 18, they can build credit and learn good financial habits as authorized users on their parents’ accounts.
What’s The Easiest Card To Get With No Credit?
The Discover It Student Cashback card is an excellent option for college students new to credit cards. No credit history is required, and you can gradually build your credit limit over time.
How Do I Establish Credit For The First Time?
There are several ways to start building credit. You can become an authorized user on someone else’s credit card, take out a secured or student credit card, or even look into a credit-builder loan.
What Builds Your Credit Most?
Making your payments on time and keeping your rotating balances below 30% of your total credit limit will have the biggest impact on your credit score. The lower you keep your balances, the better.
Find out more
- How to Build Credit – Effective strategies for building a strong credit history.
- Challenge Items on Your Credit Report – Learn how to dispute errors on your credit report.
- How to Fix Credit – Simple steps to improve your credit score.
- Fix Your Credit Effectively – Comprehensive guide to credit repair.
- Remove Collections from Credit Report – Strategies to clear collections from your credit history.
- Remove Hard Inquiries – Minimize the impact of hard inquiries on your credit.
- Updating Personal Information on Credit Reports – Ensure your credit report reflects accurate personal information.
- Soft vs Hard Credit Checks – Know the difference and how they affect your credit score.