Want to know how to build credit at 18 years old? This guide is for those who want to learn how to build credit as a teenager, whether you’re looking to build credit under 18 years of age or are older than 18.
In this article, I will discuss that credit is a financial tool, cover the three major credit agencies, and how to set up a free online account for each of them. I’ll also share why it’s important to manage your credit score by reviewing your profile annually.
Ready for this guide to building credit as a teen or young adult? Read on for more information!
Credit is a Financial Tool
Having credit enables you to buy goods and services before you have the full payment amount. For things like car loans, student loans, and home loans, that’s great. You can qualify for those things and enjoy them as you work to pay them off. However, if you use a credit card frivolously or on large purchases simply to have more things, the interest can quickly get out of hand.
If you use credit responsibly, you’ll be able to successfully build your credit history and credit score. You’ll prove that you’re trustworthy and responsible enough to pay back the loans you’ve accumulated.
Credit is not a free-for-all
Unfortunately, there are people of all ages (teens and young adults included) who struggle with credit issues because they have not developed the financial discipline to use credit responsibly. Let’s take a credit card as an example. If you are new to using credit cards, then you are still learning how to manage this type of debt. If you spend up to the card limit (maxing out), you can no longer use the card until you reduce the balance. For many, this results in making only the minimum payment every month. If you are late with a payment, you pay a late fee, and the balance grows. This is the worst-case scenario; many do not know how to manage, and it is a stressful situation. With any type of loan, if you miss your monthly payment, you will start to receive collection calls and notices asking for a payment. That is more stress you don’t need. Many unexperienced young adults are not equipped to effectively handle those calls. Assuming this is not the result of losing your job, you can avoid this trap. Credit is a financial tool, and like any tool, you need to know how to properly use it to avoid hurting yourself.
Finally, not all loans and credit cards have the same commercial terms, and some loans and cards carry very high interest rates and late fees. So you have to do your research to find a loan that fits your needs and learn how to manage your credit to your advantage.
The Three Major Credit Reporting Agencies
There are three major credit reporting agencies that keep records of your credit report: Experian, TransUnion, and Equifax. Each of them will have slightly different scores for you, but it’s important to know about them all so you can be proactive about building your credit.
Experian
Experian is a company that’s been around for over 125 years and is highly regarded as a credit reporting company. It gathers, analyzes, processes, and manages data to help people make smarter decisions with their money. Experian also helps prevent identity fraud and crime, but we’ll talk more about that later. Experian uses a FICO Score 8 model to calculate your credit score.
TransUnion
Transunion is a global company that offers information and insights into your credit, making sure they have an accurate representation of who you are. It’s been around since 1968 and is based in Chicago, Illinois. Transunion uses the VantageScore 3.0 model to aggregate your credit score.
Equifax
Equifax is headquartered in Atlanta, Georgia, and has been in business for about 122 years. Their 12,000 employees work in 24 countries around the world, and their motto is to help people live their financial best. Equifax uses the FICO Score 8 model to calculate credit scores.
Setting Up Your Free Online Accounts
You can set up a free online account with some of these reporting companies, although some will charge a monthly fee for the service. Setting up an online account will enable you to check your credit score regularly and manage it better. Below I’ll list more detailed information on how to get a free online account for each credit reporting company.
Experian
When you come to the Experian website, there should be a big, green button toward the top of the page that says “Yes, let’s go,” to get a free credit report and FICO score. Click that and you’ll be taken to their registration page (or just click the link I’ve provided here). Add your information to create an account – that’s how easy it is to register!
By registering, you’ll have access to your free Experian credit report and FICO score, tips to boost your score, and a refreshed report and score every 30 days. They’ll also monitor your Experian credit score, offer a dark web surveillance report, and match credit cards and loans you may be interested in.
TransUnion
Unfortunately, TransUnion does not provide a free account to monitor your credit score. They charge about $25 a month for the service, which grants you unlimited score and report access, CreditCompass, email updates of critical changes for all 3 bureaus, instant email alerts, the ability to lock and unlock TransUnion and Equifax reports, debt analysis, unlimited access to ID theft specialists and up to $1M identity theft insurance.
To register, fill out your registration information on their website.
Equifax
On the Equifax website, they encourage you to visit AnnualCreditReport.com, which is said to assist you in obtaining one free credit report from each credit card company once a year. I personally pull a free credit report for all three major credit agencies from this website, so you can obtain a free report (without a credit score). This is a good way to see what information is being reported on your report. You can determine if this information is accurate or not, and if not, you can file a dispute. Finally, you can see if there is a loan on your report that does not belong to you, which may be the result of a mistake or credit fraud.
Equifax also encourages visitors to sign up for a “my Equifax” account. It’s easy to register: you just type the relevant information at the link I just provided and hit “Continue” until you’ve completed your registration. You may even qualify for additional reports throughout the year, if you meet certain requirements.
There are other compaines that provide credit reporting and monitoring services that are in competition with the major three credit agencies. Examples are: Credit Karma, Credit Sesame, Creditwise, and Mint, to name a few. The credit information these competitors provide is being pulled from one of the three major agencies, but these competitors offer their own brand of services. I will discuss these competitors in another post.
How to Manage Your Credit Score
Managing your credit score doesn’t need to be difficult. Once you know what to do, just be consistent and your credit score will continue to climb and get better. Managing your credit score is as easy as 1,2,3.
Pay your bills on time.
The most important part of managing your credit score is to pay your bills on time every month. FICO and VantageScore (the two scoring companies mentioned above) place the highest importance on timely payments. If you make payments 30 or more days late, your score can drop by 100 points, not to mention that you may get stuck with late fees.
To ensure bills are paid on time, here are some options:
- Set up automatic bill pay
- Set up reminders on your computer or phone
If you choose to set up reminders, make sure you set it well in advance of the due date. That way, you can transfer funds from other sources if need be, avoiding late charges.
Use just a fraction of your available credit.
Another big factor in your credit score is how much credit you use. It’s best to spend less than 30% of your available credit, but it’s even better if you can use less than 10% of your credit. This only applies to revolving credit, such as credit cards or a home equity loan. This means the credit reporting agencies will lower your score for maxing out your credit cards.
Here are some ways to keep your credit utilization low:
- Spread out big purchases over multiple cards
- Sign up for card alerts to tell you when you’re approaching the 30% mark
- Pay off your balance in small chunks during the billing cycle if you can
- Ask for higher credit limits
If you choose to ask for higher credit limits, be careful. Although raising your credit limit will help with your credit score temporarily, it may also encourage you to spend more money that you don’t have. Using more credit means making higher payments, so be wise if you decide to go that route.
Watch your other accounts and track your credit scores.
There are more factors than on-time payments and credit card utilization that go into your credit score.
The other factors include:
- Credit applications. If you apply for credit in many places at once, creditors can see that as a red flag. The only exceptions to this rule are mortgage loans, student loans, and car loans within a two-week period, since it’s obvious you’re looking for a good rate.
- A variety of credit accounts. Having a mix of credit cards and installment loans will boost your score, and you can do that simply by opening credit as you need it.
- Age of accounts. If you have accounts that show a long record of responsible use, your credit score will benefit. Keep your credit cards open unless you have a good reason to close them (like a high annual fee).
- Balances and debt. Being faithful to pay your debts over time will help your score get better. Just steer clear of stacking up too much debt for your income.
Review Your Credit Profiles Annually
Check your credit report at least once a year to ensure that there aren’t any errors. Checking your own credit is considered a soft inquiry, and won’t have a negative effect on your credit score. With the increase in identity theft, you want to check to make sure there are no loans on your report that do not belong to you. Another benefit to checking your score regularly (once a year or more) is that you can enjoy watching your credit score climb as you follow these tips!
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I hope you’ve enjoyed these tips on how to build a credit history! If you need help building credit, please contact Stewart Publishing. I built this company because I believe that young adults should be given the tools they need to succeed, and not all of those tools are taught in school. The Stewart Publishing blog has other posts, that are useful to teens and young adults.
