The Best Age to Start Credit Monitoring
The secret to unlocking many financial opportunities? Good credit. An excellent credit score means lower interest rates on car loans, credit cards, and mortgages. Many landlords and employers also check credit reports before they make a job offer or approve a rental application. Since credit is based on spending, it’s important to know the best age to start credit monitoring. The answer might surprise you.
How young is too young when it comes to building credit and credit monitoring? If you’re under 18, one of the more popular options for building credit is to be listed as an authorized user on a credit card (owner must be over 25). In many cases, issuers don’t set an age minimum for authorized users since they aren’t responsible for any of the bills.
Authorized user status allows for the teenager to benefit from the good credit history the signee is building. However, being an authorized user does not have the same credit-building power as being the primary user of the account; but it’s a start.
Thinking about signing someone on as an authorized user, but you’re not sure if the person is ready? You don’t have to give them a card until you feel he or she is ready for the responsibility. Simply being the authorized user on paper is enough to do the trick.
18+ With a Co-Signer
If you or your child is over 18 and looking to increase their credit score more than authorized usership can do, there are other opportunities. A popular way to build credit between the ages of 18-21 is through a car loan or having someone co-sign on a student loan.
The CARD Act of 2009 requires everyone under the age of 21 to have a co-signer or demonstrate their ability to pay. Full-time students will likely need to rely on a co-signer if they do not have a stable full-time job. If the applicant is under 21 and is not a student and has a full-time job with stable income, a co-signer may not be required.
Remember, co-signing for the borrower comes with risks (in comparison to adding someone on as an authorized user on a card). As a co-signer, you’ll be responsible for paying if the borrower doesn’t. Be sure that you’re comfortable with this possibility before moving forward with co-signing.
Co-signing a loan, credit card, or student loan are also additional options to help build credit. If you don’t have someone that can add you on their card or co-sign on a loan, a starter card might be your best first step.
18+ Without a Co-Signer
If you don’t have someone that will add you on as an authorized user or be a co-signer for you, getting a Secured credit card may be your best first step. Secured cards require an upfront security deposit to open. Your deposit typically equals your initial credit limit. For example, if you have $500, you’ll use this as your security deposit, and it will get you a $500 credit limit. Keep in mind; this doesn’t work like adding money into a bank account. Once you load in the $500, it doesn’t mean you freely spend $500. You will need to make payments monthly like a regular card, and once you pay on time for the contract, you’ll get the deposit back. These cards are easier to qualify for but are imperative that you pay them on time. Once you have one, or any loan, you’ll want to start monitoring your credit score.
Make Payments On Time
One of the most significant factors when it comes to your credit score is how frequently you pay your bills on time. If you’re bad at remembering to pay things on time, consider setting due date reminders on your phone. Terrible at alarms? Schedule automatic payments from your checking account each month.
The second you get your first card or loan, your number one goal should be never to miss a bill payment.
Bill payments don’t just include credit cards. Once you’re 18, if you go to the hospital or have any bill that isn’t paid on time, you’re at risk for being taken to collections. Having a collection on your credit report can hurt your score.
Don’t Spend More Than You Can Afford
This should go without saying. Only pay for what you need and what you can afford. One of the next most important factors for your credit score is how much of the available credit you’ve been given and how much you use it. Let’s say you’ve been given a credit limit of $1,000, and most months, you carry a balance of $900. This may hurt your credit score. To learn more about how spending can affect your credit, use our ScoreMaster tool.
Credit cards are not used for buying things you can’t afford; they are there to give you a little extra time to pay for a big purchase. It will likely affect your score and cost money in interest when you take more than 30 days to pay it off.
Stay on Top of Your Credit Score
Monitoring is just as important as building your credit. If you do a ton of work to build your score, you’ll want to make sure nothing is hurting all that hard work.
Credit monitoring is one of the best ways to learn what will positively or negatively impact your scores. It also helps you catch inaccuracies or signs of identity theft sooner.
You can check your credit report for free, take action, and more with a seven day free trial of SmartCredit.
If you’re someone who is thinking about their financial future, it’s time to commit to building your credit. Building your credit at a young age will likely make it more possible for you to get things later on in life, such as an apartment, car, dream job, or premium credit card that comes with points and exclusive benefits. Additionally, a better score can save you thousands of dollars in interest.