Why it is important to establish credit when young

Establishing credit and learning to use it wisely when you are young can make your transition to adulthood much easier. It can help prepare you for many firsts, such as your first apartment, car loan, mortgage, or even your first job. 

Why establishing credit when young is important

A positive credit history is about more than just being able to use a credit card to buy things. 

As a truly independent adult, you will need to be able to rely on your credit history for everything from getting a cellphone and utilities in your name to qualifying for the best car insurance rates. Your credit history will play a big role in whether your applications for credit are approved. It will also determine how high your interest rates will be and whether you are asked to pay additional security deposits. 

It takes time to build a credit history and it can be more difficult to be out on your own if you delay. That’s why it’s important to begin building a strong credit history as early as you can.

How to begin establishing your credit

If you’ve never had credit in your name before, lenders may be reluctant to approve you for an account without a cosigner. Still, one way to start establishing credit when you are just starting out is to have your parents or another loved one add you as an authorized user or joint credit card account holder. Being an authorized user means you are authorized to charge on one of their existing accounts. As a joint credit card account holder, you and the person with established credit create an account together. They can also help you review the monthly statements and perhaps even help make payments. Learning about the entire credit process, from making a charge to paying the bill, will help you manage credit well when you get out on your own. Understanding the responsibility to make every payment on time is the key to making credit to work for you, rather than becoming overwhelmed by debt. 

Stay smart when applying for credit

Many credit card companies send out credit offers to consumers they’ve already prescreened to see if their credit history meets their risk requirements. If you don’t have a credit history, you may not get these offers. 

That doesn’t mean you should complete every credit card application you receive, however. Be selective. Consider how you can use credit to your advantage and only apply for accounts that offer the incentives and services you want and need. Those might include low interest rates, low or no annual fees, or even airline miles you can use to travel. If there’s an annual fee, be sure the benefits are enough to justify the cost. 

For more information about establishing and building your credit, see the following articles: