As a teenager, you may not think much about your credit score or the importance of building credit. After all, you’re probably not planning on applying for a mortgage or car loan anytime soon. However, building good credit from an early age can have many benefits and set you up for financial success in the future.
What is credit, and why is it important?
Credit is the ability to borrow money from a lender, such as a bank or credit union. It’s important because it allows you to make large purchases, like a car or a house without having to pay for them all at once. A good credit score can also help you get better interest rates on loans, which can save you money in the long run.
How is your credit score determined?
Your credit score is a number that reflects your creditworthiness. It is based on information in your credit report, which is a record of your credit history. This information includes things like how much credit you have, how much you owe, and whether you make your payments on time. The most commonly used credit score is the FICO score, which ranges from 300 to 850. A higher score indicates that you are a lower risk to lenders and is more likely to be approved for credit.
How can you build credit as a teenager?
As a teenager, you may not have much of a credit history yet, so it can be difficult to get a credit card or loan on your own. However, there are still some steps you can take to start building your credit:
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Become an authorized user on a credit card that is in good standing. This means that you will have the ability to use the credit card, but you will not be responsible for making payments on it. This can be a great way to start building a credit history.
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Get a secured credit card. This is a credit card that is backed by a deposit that you make. This can also be a good way to start building credit, as you will have to make regular payments on the card.
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Pay your bills on time. Late payments can hurt your credit score, so it’s important to make sure you pay your bills on time. This includes things like your cell phone bill, car insurance, and even library fines.
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Don’t max out your credit cards. Using too much of your available credit can also have a negative impact on your credit score. It’s generally a good idea to keep your credit utilization (the amount of credit you are using compared to the amount you have available) below 30%.
Did you know? Experian Boost allows you to add your cellphone account (and other regular payments) to your credit report. Your on-time payments are then factored into your credit score.
Hey parents—looking for a smart way to teach your teen about responsible credit use?
Becoming an authorized user or exploring a secured card together can be a great first step. Learn how our First Savings Bank credit card can support those early lessons in financial responsibility.
Becoming an authorized user or exploring a secured card together can be a great first step. Learn how our First Savings Bank credit card can support those early lessons in financial responsibility.
