It's never too early: How to build good credit in high school

If you haven’t finished high school and you’re already thinking about how you can build credit, you deserve an award. Most high school students are more focused on the next assignment or the next college prep activity than on setting themselves up for financial success in adulthood.

Right now, your ability to get your own credit card is very limited. The ideal time to apply for one is after you’ve finished high school and have either started college or gotten your first full-time job.

But you might be able to begin building a credit history now. Let’s look at why it’s important to build credit, and then we’ll discuss some of your options.

Why credit is important

Your credit score is a measure of how well you’ve handled credit, which is another name for borrowed money. Having a good credit score means you’re a low-risk borrower, so lenders will give you lower interest rates and better terms on loans — such as auto loans, mortgages and, yes, credit cards. But a good score can also signal that you’re financially responsible in general. Landlords, employers and insurance agents also use your score to make decisions about you.

You won’t experience most of the benefits of good credit until you’re living on your own. But it’s not too early to set yourself up for those benefits.

Age restrictions on credit card applicants

Federal law restricts how lenders can extend credit to young people. The restrictions are intended to prevent young adults from running up debts that they can’t repay, and they make it very difficult to get a card until you turn 21.

There are only two ways you can get a credit card of your own before you can legally drink:

• Work full time. Having an income makes lenders more confident that you’ll be able to pay back any money you borrow. You don’t have to earn big bucks, but you probably won’t qualify if you work only a few hours each week. This is one area in which high school grads who go directly into the workforce might have a leg up on those who go to college.
• Find a co-signer. A co-signer agrees to share responsibility for your credit account. He or she is on the hook if you don’t pay your bills, so you’ll probably want to ask a parent or another close relative who trusts you to use the card responsibly — and who has good enough credit to qualify. Not all credit card companies allow co-signers, so check out our list of issuers that do.

If you can’t get your own credit card

It’s all right if you don’t have a relative willing to co-sign on your credit card application. You can still use someone else’s strong credit history to build your own by becoming an authorized user on a friend or family member’s existing account.

In this situation, you receive a credit card with your name on it that’s tied to your friend or family member’s account. You’re not responsible for paying the bills — the account holder is.

Not all credit card issuers report authorized user activity to the credit bureaus, the companies that assemble the credit reports that form the basis for credit scores. So it’s a smart move to call the issuer and ask. Even if the issuer does report, your behavior won’t have as great an effect on your credit score as it would if you had your own account. Still, every little bit helps when you’re starting from zero. And it’s a way to practice using a card and building good credit habits.

Best practices for building credit

Once you have access to a credit card, using it wisely will let you build credit much more quickly. That’s not particularly complicated, but it does take discipline. We could write volumes about this topic, but here are the most important points:

• Use the card regularly. An active account does more for your score than one that’s unused. Making at least one small purchase with an account each month shows that you’re actually using the credit that’s been extended to you.
• Keep your balance low. We recommend that you pay your credit card bill in full every month. Doing so lets you avoid interest charges, and you don’t need to carry a balance from one month to the next to have excellent credit. But if you do carry a balance, try to keep it under 30% of your available credit — less than 10% is better still. This will minimize the impact on your credit score.
• Pay your bill on time. Making at least the minimum payment by the due date every single month is the most important thing you can do to keep your credit healthy.

What you can do right now

Even if you can’t get a credit card quite yet, there are still ways to prepare yourself to have healthy credit later on. For example, you can educate yourself about how credit works or talk to adults you admire about financial lessons they’ve learned. When you’re ready for your first credit card, you’ll be able to put it to good use.

Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email:virginia@nerdwallet.com. Twitter: @vcmcguire.

This article first appeared at NerdWallet.