Beginning your official adult life at 18 is full of excitement, freedom, and responsibilities. Working, paying bills, and building credit is among the less exciting parts of adulthood. Although, when you’re financially stable you’ll create more time for fun and less spent on stress.
Establishing healthy credit building and mature money management habits will help lay the foundation for a successful financial journey! Use our 8 steps below on how to build credit at 18 and set up a future you desire.
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Do You Have A Credit Score at 18?
Most people who just turn the legal age of 18, have no credit history and can find it difficult to qualify for major credit cards and loans. You might have a 700 credit score, but you could have zero credit history and credit mix.
So what are you to do? First, we recommend giving yourself a crash course on the ins and outs of credit and how to use it. The more you know, the better your odds are of avoiding getting into debt and strengthening your credit profile.
1. Learn The Basics of Money
Educating yourself on the basics of money, how to budget, and pay your bills is vital when you become the steward of your finances. In 2021, the options for banking are endless and it’s hard to know what bank to choose. Consider moving into the modern world of banking with a RoarMoney account.
MoneyLion offers virtual debit cards, a user-friendly app, cashback rewards, a plethora of financial tools, and budgeting resources – for only $1/month! Click here and find out more about how a RoarMoney account could be the perfect fit for you!
2. Understanding Credit
It’s easy to swipe and purchase with plastic money without a thought – until later. Trust us, if you want to borrow money in the future for large purchases like cars and a mortgage, understanding the impact of credit is vital.
Lenders will pass you by – or offer you sky-high interest rates – if you’ve been reckless with your credit in the past. Below is a breakdown of how credit is calculated.
35% – Payment History
Credit history is a record of a borrower’s repayment history from all creditworthy accounts such as credit cards, loans, collections, and governments. This shows if you make your payments on time and gives a lender an idea of what risk level you’d be if you borrowed from them.
30% – Debt Owed
This is the amount of money you owe. The amount of debt you carry and also takes into account available credit that’s being used, also known as credit utilization. Your credit utilization percentages are recommended to stay under 30%.
15% – Length of Credit History
The amount of time any given credit account has been opened. Typically, a longer history of credit is considered good and will provide more information about your credit history and repayment behaviors for a lender. Keep in mind that, this can be negatively overshadowed by delinquent payments and accounts not being used.
10% – Credit Mix
Credit mix means different types of credit including loans, credit cards, student loans, car loans, and mortgages. This factor of your credit score takes into account your payment history, reliability to repay debts, and how well you can manage different types of credit.
10% – New Credit
Don’t be too quick to apply for any credit offer that comes your way. This could lead to too many new accounts opened and can lower your average credit age, and lenders will see you as a possible risk who is in financial trouble.
Although, slowly adding a new type of credit and giving you a better credit mix could increase your score over time. Remember, new hard credit inquiries stay on your credit score for up to two years.
3. Become An Authorized User
When you become an authorized user on someone else credit card, you’d be piggybacking off of a trusted person’s good credit. Only do this with someone you know that has their financial affairs in good standing and great credit. If they fall behind on payments, your credit could take a hit.
You’re not required to get a physical card from the primary cardholder to benefit from their credit and an authorized user fee may be applied. In most cases, you should see a credit increase almost immediately, depending on the primary cardholders’ credit score factors.
However, before you add yourself as an authorized user, double-check with the card issuer that this move will benefit you. Some credit card companies don’t report to the credit bureaus for authorized users
4. Credit Builder Loan
A credit builder loan is ideal for someone who has no credit history or subpar credit score. Unlike credit cards or personal loans that often require a good credit score. With a Credit Builder Loan from MoneyLion, you can get up to $1000 at competitive interest rates, no hard credit inquiry, and same-day funding– for only $19.99/month!
At MoneyLion we know how important credit history is and that’s why we’ll help you establish and improve your credit score with 12 months of reported payment history and 24/7 credit monitoring.
5. Secure Card and Student Credit Cards
A secure credit card is a great idea for young adults who want their own credit card, but do not qualify for most major credit cards based on their credit. These types of credit cards typically required a deposit equal to the limit on the card.
Student credit cards are an option, but they could come with higher interest. If you think you’ll misuse it, you might want to skip this option!
6. Student Loans
If you’re in college or planning to attend in the future, you might have to apply for student loans. A student loan is considered an installment loan and this is a great way to build credit while in college. The sooner you can start paying them back, the less interest will accrue and you can cut down on the principal balance.
7. Save and Pay Off Debt
Don’t rely on borrowed money to live off. Create a budget and make saving and paying off your debts a priority. As said before, keeping your credit utilization around 30% or less is a good rule of thumb!
8. Monitor Your Credit
With a Credit Builder Plus membership, you can monitor your credit and get expert advice for only $19.99/month. Keep tabs on your credit as you establish a balanced credit score and monitor your budget.
Jumpstart Your Credit Journey
If you’re already thinking about how to build credit at 18, you’re already ahead of the game! Keep our tips and tricks in mind and you’ll see your credit soaring up in no time.
Need to avoid hurting your credit score by missing a payment? Sign up for a MoneyLion account and find out how you can get an Instacash advance up to $250 at 0% APR without sacrificing your credit score.