Turning 18 marks a major milestone on the path to adulthood. As a legally recognized adult, opportunities open up to take control of your financial life. One of the most critical things every 18-year-old should do is establish and start building their credit history.
But how exactly should an 18-year-old start about building credit responsibly for the first time?
In this article, we will cover everything teenagers and young adults need to know to jumpstart their credit journeys, including:
- Why credit matters so early
- The best way to get started
- Realistic timelines and expectations
- Early credit pitfalls to avoid
Let’s empower the next generation of fiscally responsible adults!
Why Credit Matters So Young
At first glance, focusing on credit scores likely seems irrelevant while going through major life transitions and coming-of-age milestones. However, laying down positive credit foundations early equates to huge long-term advantages.
Here’s why building credit should become priority number one at 18:
- Paves the Way for Adulthood’s Major Purchases
Unless you have hundreds of thousands in cash stashed away, financing big ticket adulthood items requires good to excellent credit:
- First apartments
- College tuition
Positive early payment history unlocks better loan rates for these massive future purchases.
- Prevents Struggling Unprepared Later
Without prior credit accounts in good standing, trying to finance anything with bad or no score later causes turmoil:
- Sky-high loan rates
- Burdensome down payments
- Denied applications
- Missed opportunities
Early diligence prevents this pain and positions you for seamless adult financing approvals.
- Instills Crucial Financial Lessons
Lastly, properly using starter credit cards or loans teaches tomorrow’s high-level money management skills:
- How interest and debt work
- Establishing financial discipline
- Monitoring account usage responsibly
- Making payments on time every time
Lessons prepare you for more complex credit products and wealth building later on.
Clearly, laying the credit foundation early provides peace of mind when adulthood’s bills come due. So let’s explore the optimal way for 18-year olds to begin.
Secured Credit Cards – The Smart Way for Teens to Start
Jumping straight into unsecured credit cards with no money down comes with risks for first-timers. However, secured starter credit cards require an upfront refundable deposit that acts as a credit limit while reporting to bureaus the same.
Here’s why secured cards pose the best initial credit-building path for teenagers:
- Guaranteed approval – No credit checks required meaning approval guaranteed.
- Small deposit – Typically only $200 to get started building history. Some cards allow deposits as low as $49.
- Ideal “training wheels” – Low risk way to try using credit while limiting chances of overspending.
- Graduate benefits – Making 6-12 months of consecutive on-time payments lets you graduate to unsecured cards and get your deposit back.
As long as you make payments by the due date and keep balances low, secured cards build the same payment history as traditional cards quick.
Just make sure your card reports to all three bureaus for maximum impact.
Realistic Expectations First Year Into Building Credit
Patience pays off tremendously when building credit. Many factors influence scores ranging from payment history to credit diversity. But realize most scoring models scale dramatically at the one year mark.
Set proper expectations about early score progression to stay motivated:
Month 0 to 6
Don’t expect fireworks or rapid point surges early on. Secured card issuers report your first six months of diligent activity establishing initial history. Scores typically increase marginally in the 50 to 100 point range.
Month 7 to 12
Months 7 through 12 mark noticeable ascension. After a year of perfect payment history with low utilization, FICO and VantageScore models ramp up point gains more exponentially. Jumps between 150 to 300 points this period are reasonable.
Card tip – If your issuer doesn’t graduate your secured card automatically after 12 months of excellent activity, call to prompt your graduation evaluation for upgrade consideration.
The key is NOT obsessing over scores early. Lay the foundation properly through responsible habits and let the algorithms boost your profile over time naturally.
Next let’s examine common missteps to avoid.
Early Credit Pitfalls to Avoid for 18-Year Olds
Mistakes may happen, but being aware of common early slip-ups helps course correct faster keeping your building momentum steady.
- Missing Payments
Making late payments destroys foundation-building progress faster than almost anything. Set payment reminders through your bank’s app early in each period. Autopay those bills!
- Maxing Out Limits
Secured cards start with low limits – so maxing them out early spiking your utilization crashes scores. Use moderately below 30% instead.
- Applying for Too Much Credit Upfront
Every application triggers a hard credit check that temporarily lowers scores around 5 points. Apply for just 1 starter card, even if you qualify for more.
- Getting Impatient
Lastly, desperate long shots like loan consolidation offers or credit repair agencies promising overnight point surges often backfire, sinking beginners further. Stay the course!
Stay diligent avoiding self-inflicted wounds keeping your credit building journey smooth as you cross into adulthood.
Leveling Up Beyond Year 1
After a year or so of positive foundation-setting credit habits, you’ll graduate beyond basic starter cards and qualify for stronger building tools:
Second Credit Card – Use your good score to apply for your second card strict about keeping balances low across both below 30% total utilization.
Installment Loan – Also consider a 24-month installment loan you pay diligently monthly. Credit diversification lifts scores higher.
Credit Limit Requests – Ask issuers periodically for higher spending limits to grow available credit as your reliability proves itself over time.
House or Auto Financing – If homeownership or car buying is on your timeline within the next few years, work closely with reputable lenders suited for first-time buyer programs. Shop rates avoiding unnecessary credit checks. Put at least 20% down securing the most favorable terms.
The key is adding credit diversity SLOWLY in proportion to your income and only as needed based on major life goals. Logs in the fire build slowly over time.
Conclusion on How to Start Building Credit at 18
Turning 18 marks adulthood’s financial awakening. While still finding your wings, establishing responsible credit early pays exponentially long-term. Secured cards pose little downside offering guaranteed approval, low deposits, and training wheels building real positive history.
Stay diligent avoiding early missteps. And before you know it, you’ll watch your score and financial standing soar beyond your peers still years behind you.