How To Start Building Credit at 18

Consider a situation where you have to take an unsecured education loan at the age of 21. Would you be able to borrow it without having a credit score? The simple answer is no. Not quite.

Now, you might be thinking, “When my parents can take a loan for me, why do I need to think about it?”

Say certain circumstances come about, such that your parents can't afford your education; don't you need to prepare yourself to take that responsibility? If the answer is yes, then you do need to start working towards it.

Here comes the real question - at the age of 18, how can you build a credit history? As you have come to this page, it is safe to assume that you would also be seeking an answer to this question. 

Let's find out the answer through a thorough discussion.

Why Should You Have a Credit History at the Age of 18?

A credit history builds your creditworthiness for the future. Having a good credit history ensures lenders that they can trust you with money.

For instance, when you borrow money from a friend for the first time, he lends it to you quickly. But if you don't pay him back, the next time when you ask him, he would be skeptical about you. Sounds about right? Well, the same is the condition with banks. 

If your credit history is good, reflecting no missed payments, banks will offer you credit happily and that too at a low interest rate. 

However, it so happens that students lack the financial literacy needed to understand this at the age of 18. 

How to Build a Credit History as a Newbie

Understand Your Credit Report

This is a baby step to start building credit. If you are wondering where to check your credit report, then the answer lies in websites of credit bureaus such as Equifax and TransUnion, or fin-tech portals like mymoneykarma. 

Familiarizing yourself with the factors that lenders consider in credit score calculation will reduce the chances of committing harmful mistakes, which can impact your credit score immensely. 

The factors accountable for the credit score calculation are:

• Payment history

• Length of credit history

• A mix of credit accounts

• Hard inquiries

• Credit utilization ratio

Get an Add-On Card

In India, the minimum age to become eligible for getting a credit card is 21 years. 

The good news is that even at the age of 18, you can become an authorized user on your parent's/relative's card. Such cards are known as add-on credit cards. Frequent transactions and regular repayment through an add-on card can help you in building credit.

Remember one thing; such cards are only helpful when you maintain a low credit utilization rate ( < 30%). 

Many banks, such as HDFC, American Express, etc. offer these cards. 

Get a Secured Credit Card

Secured cards are a part of credit builder programs and can be used to build new credit, as credit issuers report the activities on the card to credit bureaus. 

These cards are offered against collateral or a fixed deposit, which means that you deposit an amount with the bank as security to avail an equivalent credit limit on the secured card.

Some of the top secured cards in the market are:

• ICICI Bank Coral Credit Card

• ICICI Platinum Chip Card

• SBI Advantage Premium Credit Card

Pay Your Dues on Time

The hard work that you are putting in to build your credit will not pay off if you miss payments. Missing payments will have an adverse effect on your credit score.

A good credit score is as significant as your college grades are. If you think any of them are trivial, you may face great trouble in your career and finances.

Remember one thing; if you can't clear the entire bill amount, try to pay at least more than the minimum due. It can save you from paying huge amounts of interest.

Use Your Credit Cards Frequently

For building credit, you need to use your cards at regular intervals. This does not mean overspending, though! If you end up maxing out on your credit limit every time you use a card, you’d rather not be using it at all. Make sure that your card doesn’t idle away, however; at the same time, keep your credit utilization rate low.

To Wind Up

As they say, "tomorrow never comes." If you have enough reasons to build your credit at 18, then why wait?

mymoneykarma wishes you a happy and healthy credit life!