Building credit when you're 18 is crucial to becoming an adult. These seven pointers will show you how to begin establishing credit at the age of 18.
1. Recognize the fundamentals of credit.
You should have a fundamental understanding of how credit works before moving forward.
The three primary credit reporting agencies, Experian®, Equifax®, and TransUnion®, keep track of your credit record. Separate reports may be produced by each bureau. Your credit score is determined by the information in the report. VantageScore 3.0®, a credit score model offered by Chase Credit Journey, and FICO® are used to calculate this.
Your VantageScore 3.0® credit score is primarily determined by these six factors:
- Payment history
- Credit history
- Credit usage
- Total balances
- Recent credit
- Available credit
Your FICO® credit score is primarily determined by five criteria, including:
- Payment history
- Credit utilization
- Length of credit history
- New credit
- Credit mix
All of the aforementioned can have an impact on your credit score depending on your future conduct.
Your free credit report must be provided to you by the three main credit reporting bureaus once a year. Your interest rate on credit cards and loans will be determined by future lenders using your credit report and score. If you have a high score, your interest rate will probably be lower; if you have a low score, your interest rate will probably be higher.
2. Obtain authorization to use
Do you know somebody who is prepared to add you as an authorized user and has a good credit rating? A person who has permission to use another person's credit card is known as an authorized user. You can begin to establish credit activity by doing this.
Even if your card is inactive, provided it is in good standing, its activities may raise your credit score. Both of you may suffer if you or the principal cardholder accrue excessive debt.
Make sure the credit card firm records activities for authorized users before signing up as one. You won't be able to build credit otherwise.
3. Get a beginner credit card.
Using credit cards is an excellent way to establish credit. You can have problems being approved for some cards if you don't have a credit history. Consider a student credit card if you're a student.
With a secured credit card, you can also build your credit history. A security deposit or piece of property is necessary for a secured credit card. The cash deposit, which is normally between $200 and $500, becomes your credit limit. Chase does not provide secured credit cards, but they function similarly to regular credit cards. They may have exorbitant interest rates, annual fees, and incur late fees when payments are missed.
4. Establish credit by making timely payments.
Making on-time payments is one of the best things you can do to improve credit because payment history is a crucial component of your credit score.
Making prompt payments affects more than just your credit card balance. To build good credit, you should pay all of your obligations on time, including student loans, vehicle loans, and other debts. Your credit score may suffer as a result of missed or late payments.
Enrolling in autopay is one approach to ensure that you never forget to make a payment.
5. Maintain a low balance.
Your credit usage ratio is a crucial component of your credit score. A percentage of your credit score is determined by your credit utilization ratio, or how much debt you have relative to your credit limit.
Keep your credit utilization ratio around 30%, according to experts. In general, you should aim to keep that percentage significantly lower, about 10%.
The best course of action is to pay off your balance in full each month. By doing this, you'll keep your usage low and save money on interest.
6. Loan money to students
It can be advantageous to take out a loan only for credit-building purposes. Even if Chase doesn't offer student loans, you can require this kind of loan to support your college expenses.
Your credit report will reflect all student loan debt, including federal, private, and refinancing obligations. As soon as you start making payments on a loan, it will start to affect your credit score.
7. Pay attention to your credit report and score.
Make sure everything is in order before you begin to establish credit. Chase Credit Journey offers free access to your credit score. Verify that there are no errors. Inform the major credit reporting bureaus of any errors you find.
