Most people don't think about establishing credit until their adult years. But if you're a teenager, you can get an early start and begin establishing a credit history before your 20's. Building credit at an early age can help you qualify for mortgage loans and other types of loans sooner. Know your options, and then select the one that's right for you.
Secured Bank Credit Cards
Talk to your parents about opening a bank account with a local bank or credit union. Once you've set up the account, inquire about secured credit cards with the bank or credit union. Secured credit cards are a simple way to build a credit history as a teenager. These cards require a security deposit or collateral, and your credit limit on the card reflects your security deposit. In other words, if you put down $300, you'll receive a card with a $300 credit limit.
Authorized Credit Card User
Discuss your desire to build a credit history early with your parents, and then ask them to add you as an authorized user on one of their credit cards. As an authorized user you don't complete a credit application or wait for an approval. With a simple phone call to the credit card company, your parents can add your name and Social Security number to the card. This account then shows on your credit file, and as long as your parents make timely payments and manage the account well, you'll build a good credit score.
Get a Student Loan
If graduating from high school, apply for a federal student loan to begin building a credit history as a teenager. Federal student loans do not require a prior credit history and you won't need a co-signer for this type of loan. Make periodic payments toward your student loan while in school to keep the balance low; and as you make payments, your student loan provider will update your credit report with positive information.
Automobile Loan
Teenagers with a job and the ability to manage an auto loan payment can begin establishing credit with the help of their parents. Purchase an inexpensive new or used automobile, and ask your parents to co-sign the loan. Another option involves buying from a dealer that offers car loans to people with no credit history or bad credit. These "fresh start" auto loans do have higher interest rates, but you can begin building credit, and this helps you qualify for lower rates in the future.
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