Many young adults don't know how credit works, let alone what their credit score is for. According to the Consumer Federation of America, American consumers between the ages of 18 and 34 know less about who uses credit scores and the data on which scores are based when compared to other adult Americans.
This lack of knowledge can leave some young people unprepared to apply for car loans or even get an apartment without a co-signer. Without a credit history established, it's more difficult for creditors to assess a person's credit risk. However, it's never too late to become a responsible credit user and establish credit. Although you need to be 18 to create a Credit Karma account, we still have plenty of tips for young adults looking to build their credit history.
Become an Authorized User
If you're younger than 21 years old, it will be difficult for you to get approved for a credit card. However, if your parents have a positive credit history, you could benefit from it by asking them to add you as an authorized user on one or more of their credit cards. This request typically doesn't require a credit check, so you're in luck if you don't have any credit history yet. As an authorized user, you'll be issued a credit card linked to your parents' account and their account information may be incorporated into your credit report, if the bank reports account information for authorized users.
Being an authorized user will also allow your parents to track your spending so they can help you learn how to use a credit card responsibly. In most cases, being an authorized user is best used temporarily until you are either old enough or have built enough credit to get your own credit card.
Get Your Own Credit Card
Once you're old enough, you can apply for your own credit card. But it's important to remember that this thin piece of plastic can have huge ramifications on your financial well-being. When you're looking for a card, it's a good idea to consider not only low interest rates, but also what you may be eligible for, what types of cards are reported to the credit bureaus and how much financial responsibility you're able to take on. Your options may be limited to cards like a student credit card or secured credit card.
The biggest responsibility of owning a credit card is paying your bills on time because delinquency can severely affect your credit health. A simple way to assure that you spend only as much as you can afford is by using your credit card for small, regular purchases such as groceries or gas. Making on-time payments and utilizing a small percentage of your credit limit is one of the best ways to show creditors that you're responsible and reliable.
But Don't Get Too Many
The number of accounts you have also affects your credit health. Having too few accounts can hurt you, just like having too many accounts can. What's important is to find a balance between what you can handle and what could be beneficial to your credit. If you've been using your first credit card responsibly and feel comfortable adding an additional credit line, consider doing it.
If you choose to get another credit card, rather than applying for numerous cards or loans at the same time, thoroughly research your choices to identify your best options and ones you have a high likelihood of being approved for. Whenever a creditor checks your credit report during the application process, you will be hit with a hard inquiry, so you want your application to be worth it. Hard inquiries generally cause your credit score to drop and usually remain on your credit report for one to two years.
Grow Your Credit Knowledge
Credit is a complicated subject, but don't let that intimidate you. To learn more about credit, keep reading our articles. Follow current financial news on our blog. Speak up in the Credit Advice Center and learn from other members. There are plenty of learning opportunities and resources waiting to be soaked up.
If you're 18 or older, you can open a Credit Karma account and go a few steps further. Track your free credit scores over time, and take advantage of free access to your full TransUnion credit report anytime. Knowing what's on your credit report will help you better understand where you stand in your financial progress. It can also help you weed out any incorrect information or fraudulent activity.
Building credit doesn't have to be a scary venture for young adults. It feels good to take control of your own finances, make responsible decisions, and reap the benefits of those good choices.
About the Author: Nazhat Salim is a Member Support Specialist at Credit Karma. She spends her free time reading, devouring desserts and talking to her slightly deaf cat, Pusho. When she's not doing those things, she is dreaming about doing them.
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