Credit affects you no matter where you are in your life. Whether you’re in high school or your retirement years, your credit can help or hurt you. It’s important for you to take care of your money at every stage.
It is a vicious cycle: The less credit you have, the less likely you are to get approved for future opportunities.
If you’re still in high school but want to start building your credit now, you can. You can do it alone or get the help of your family. These are a few things you can do at a young age.
Credit is important — even for high schoolers
Just because you’re in high school doesn’t mean you can’t be financially prepared for the future. This is the best age to start learning about finance.
In the future, if you ever need a credit line or loan, lenders will look at your credit to see if you’re responsible with money.
5 ways high school students can build credit now
Building good credit early will benefit you later in life when you need to showcase that you’re responsible with money. Some examples are when you leave high school and need a private student loan for college or when you sign a lease for an apartment.
You need to prove your creditworthiness, even for a car loan. Here are a few ways you can start.
1. Check your credit report
Understanding how to read your credit report is the first step.
You can get a free credit report once a year through AnnualCreditReport.com. Read your report to see if there’s anything strange, including accounts that aren’t yours. Make sure the report is accurate and dispute any errors.
Your credit score is based on your report, from your payment history to how much credit you use. The better the report, the higher the score. And the higher the score, the more opportunities you’ll have for credit cards, low interest rates, and loan approvals.
You can get your score for free with a service like Credit Karma. Some banks offer free credit score options too.
2. Consider a credit card
Getting a credit card is a huge responsibility, and it’s hard to get approved if you don’t have any credit history.
In that case, you could try a secured credit card. A secured credit card allows you to put money on your card, which serves as your “credit limit.” Your deposit is your own cash, which means you aren’t a liability to lenders.
For example, if you put down a $500 deposit, you’ll have a $500 credit limit. Secured credit cards are a great first option for young adults.
“This will provide you a chance to learn about financial responsibility while still being monitored by family to ensure spending and debt don’t get out of control,” she said. “If you fail to make your payments, then the card provider will just keep your deposit.”
Remember that having a credit card means you’re borrowing money you’ll have to pay back (or pay upfront if you have a secured card).
Your credit will drop and you’ll owe money in interest if you don’t make regular payments in full. Talk things over with your parents to make sure a credit card is right for you before signing up.
3. Become an authorized user
If you have a parent or relative with good credit, ask if you can become an authorized user on their credit card. A card will be issued in your name, but you might not even use it. And that’s not necessarily a bad thing.
Just being authorized on the card of someone with good credit will boost your score. But there are drawbacks. Your credit can drop if the cardholder misses even one payment.
With great power comes great responsibility, so make sure you know how becoming an authorized user can affect your score before agreeing to it.
4. Get a cosigner
Cosigners can help you qualify for credit you might not qualify for on your own. By agreeing to repay your debt if you don’t, a cosigner makes you less of a risk to lenders and helps you establish and build your own credit.
There are some drawbacks, however. Not paying your bills on time and in full can hurt your — and your cosigner’s — credit. So, it’s normal for potential cosigners to be cautious.
Your cosigner can be anyone, but it’s best to choose a trusted family member or friend.
5. Don’t close accounts
Once you’ve opened a line of credit, such as a credit card, try to keep it open as long as possible. The length of your credit history is an important factor in your credit score. The longer you’ve had an account, the more responsible you appear to creditors.
It’s OK to leave an account open, even if it’s paid in full and you’re no longer using the card.
Start building credit as early as possible
You’ll start your credit journey on the right path as long as you can prove you’re responsible with your spending and payments.
Don’t confuse being young with being unstable. High school students can build good credit like anyone else. Avoid big mistakes early, or your credit will suffer.
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