Credit Repair

A Brief Guide To Building Credit For A Young Adult

An individual no more remains a minor as soon as he or she reaches eighteen years of age. From this point of time, they can enjoy adult privileges that include applying for loans and credit cards and getting utility services in their own name. However, when it comes to building credit for a young adult, there is no magic wand out there that can help you achieve this within a week or so. The process takes time and there is a set procedure that you have to follow. There are several factors that are taken into account in order to determine a persons credit score, such as whether they are making the payments toward their loans and bills in a timely manner, how many different types of credit they are using, how much outstanding balance they have as compared to the amount of credit available to them (also known as credit utilization rate), and how frequently they are applying for new credit. Since the life of an average American consumer runs on credit, it is very important for an individual start building his or her credit as soon as he or she reaches 18. Following is a brief rundown on how to initiate this process.

Obtain Initial Credit Tools

When it comes to building credit for a young adult, the first thing you have to do is to obtain some initial credit tools. You can start by applying for a basic checking bank account with a reputable bank. Even if you are just a student, you can still qualify for it. In fact, most banks have different types of special offers for students. Go ahead; explore your options; get a bank account. You will not be able to build your credit until you have a bank account. You are not advised to start applying for bigger loans, such as mortgage or car loans, right from the very beginning. Take some time to understand the various aspects of finances. A nice way to start is by obtain a gas card. Even if your parents are out there to support you financially, it will be a great learning experience for you to cover the cost of buying gasoline using a gas card. Once you have a bank account, you can also apply for a check card. A check card is very much like a credit card, where the maximum limit is the amount of money deposited in your checking bank account.

Tools For Building Basic Credit

It is important for you to understand that just by obtaining a check card or a gas card or a bank account is not going to help you in building credit for a young adult. Your credit starts building up when you start making timely payments in full toward those cards. Therefore, make sure you pay off the balances on your gas card and check card in full every month. If you are making late payments or making default, you will actually end up building a negative credit score. Therefore, you have to be very careful with your spending plans.

Understand The Credit Utilization Rate

A thorough understanding of the credit utilization rate is also very important for you because 30% of your credit score is determined on the basis of this factor only. A basis rule of thumb is to spend a maximum of 35% of the amount of credit available to you. It means if the maximum limit on your check card is $1000, you should not spend more than $350 using your check card. If you spend higher amount of money, it will damage your credit worthiness before you start building it up.

Overall, if you keep in mind the above things, building credit for a young adult should not turn out to be a very difficult task for you.


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