How to Build Credit at 18

Your credit score tells lenders how trustworthy you are based on your financial history. Build credit at 18 so you can qualify for a low-interest auto loan, an apartment or a student loan in your own name in the future.

These factors are most important when building credit at any age:

• Payment history: Paying all bills on time is crucial for a good credit score. A payment that’s 30 days late or more will hurt your score.

• Credit utilization: This is the ratio of your balances to your credit limits on your credit cards. Aim to use 30% or less of your available credit at all times, the lower the better. When you are starting out with a credit card, you can use it to pay for small purchases, like a cup of coffee, and pay off the balance in full by your due date.

The length of your credit history, mix of account types and how recently you applied for new credit are also factors that affect your credit score, but not as much as paying on time and using less of your available credit. When you start using credit, you can expect to have a FICO score after six months of payment history, and a VantageScore in as little as 30 days.

Since it can be hard for 18-year-olds to get approved for a credit card on their own, consider these strategies as you learn how to build credit. If you do decide to apply for a credit card, take time to researching the best credit cards for your needs, paying special attention to eligibility requirements.

Your age doesn’t have a direct effect on your credit score, but it means you will have a thin credit file. Becoming an authorized user on someone else’s credit card means you benefit from the age of their account.

The primary cardholder is responsible for making payments, so make sure the parent, friend or family member you choose has good credit and responsible financial habits. You do not need to use the card in order to benefit from being an authorized user. Before you become an authorized user, ask the primary cardholder to confirm that the credit card company reports authorized user activity to the three major credit bureaus. Your score is generated from information contained in your credit reports.

A credit-builder loan is typically available from credit unions and community banks. You can also explore loans from online companies like Self and Kikoff. When you take out a credit-builder loan, the money you borrow sits in a savings account, which you’ll have access to at the end of the loan term. You’ll need income to show you can afford the payments, so choose a low loan amount.

As you make on-time payments toward the loan, the financial institution reports that activity to the credit bureaus. At the end of the loan term, you’ll end up with better credit and some money saved, making it a win-win.

If being added as an authorized user is not an option for you, a secured credit card may be the answer. Secured cards require a deposit — usually between $200 and $2,000 — which becomes your line of credit. You can also explore alternative credit cards that do not require a security deposit.

You’ll need an income to qualify, but the bar is lower for secured cards than traditional credit cards. Depending on the secured card issuer, you may also need a checking or savings account to qualify. Before applying, double-check that the product reports to at least one credit bureau.

You can use the secured card like a regular credit card. Ideally, pay off your full balance on time each month to avoid paying extra in interest and to establish strong credit as quickly as possible.

When your score has grown, you can apply for a traditional, unsecured credit card. If you’re still under 21 at that time, though, you’ll also need to prove that you have steady income from a full-time job.

It’s not a good idea to take out student loans solely to build credit, especially because you’ll generate a credit score only after you’ve begun making payments.

But you’ll start building a credit history once you open a student loan account. All types of student loans — private, federal and refinance loans — appear on your credit report, and eventually count toward your score.

Borrow federal loans first, since they have better borrower protections, like income-driven repayment plans and forgiveness programs. Most don’t require a credit check. Fill out the Free Application for Federal Student Aid, known as the FAFSA, to apply.

Private student loans are credit-based, so most undergraduates need a co-signer to qualify. The loan will appear on both the student and the co-signer’s credit reports. Compare multiple loan options to get the lowest interest rate you qualify for.

» COMPARE: The best private student loans

After you’ve graduated and your credit has continued to climb, consider refinancing student loans. You’ll generally need a score of 690 or higher on an 850-point scale. Refinancing could get you a lower monthly payment and/or a lower interest rate, and it also bundles multiple loans into one account. That could help your credit score, since you’ll have fewer accounts with balances.