How to Build Credit as a Young Adult: A Beginner's Step-by-Step Guide

Did you know that without an existing credit account, many young adults completely lack a credit score? That's right - learning how to build credit as a young adult isn't just helpful, it's essential for your financial future.

A solid credit history is crucial when applying for apartments, securing loans, and even landing jobs, as many employers now check credit reports before making hiring decisions. Unfortunately, if you have no credit history, lenders often view you as a "bad risk," creating a frustrating catch-22 situation.

The good news? Credit scores range from 300 to 850, with anything above 690 considered "good" and scores over 720 rated "excellent." Even better, young adults can start building credit as early as 16 through several proven methods.

Payment history accounts for 35% of your credit score, making it the single most important factor in establishing good credit. Additionally, those with the best credit scores typically keep their debt below 10% of their available credit limit, though staying under 30% is generally recommended for beginners.

In this step-by-step guide, I'll walk you through exactly how a young person can build credit from scratch, including practical options like student credit cards and secured credit cards. Let's set you up for financial success!

Laying the Foundation: What Every Young Adult Should Know

Building a solid credit foundation during your early adult years creates opportunities that pay dividends throughout your life. Let me explain why this matters so much.

How does a young person build credit?

Your credit journey can begin as early as age 16, despite what many believe. The most effective ways to establish credit as a young adult include:

• Becoming an authorized user on a parent's credit card (if they have good credit history)

• Opening a secured or student credit card once you turn 18

• Taking out a credit-builder loan specifically designed for credit establishment

• Making on-time payments on student loans if you've borrowed for education

• Adding utility bills and rent payments to your credit report through services like Experian Boost

Each method helps creditors report your payment information to the major credit bureaus: Experian, TransUnion, and Equifax. Starting early gives you a significant advantage since the length of your credit history affects your overall score.

The role of credit in financial independence

Good credit directly impacts your path to financial independence in several crucial ways:

First, landlords typically check credit reports before approving rental applications. Likewise, utility companies—including power, water, internet, and phone providers—often run credit checks for new customers. Some employers even evaluate candidates' credit reports to assess financial responsibility during hiring.

Furthermore, your credit history determines whether financial institutions approve loan and credit card applications. With good credit, you can refinance high-interest loans at lower rates, potentially saving thousands of dollars over time.

What's a good credit score to aim for?

While the average U.S. credit score is 716, young adults typically start lower. For Gen Z (ages 18-26), the average score is 680.

I generally recommend aiming for at least the "good" range, which is 670-739 for FICO scores. Scores between 740-799 are considered "very good," while 800+ is "excellent". Every 20 points can make a significant difference when moving between fair, good, and excellent credit ranges.

For younger adults, understanding that credit scores tend to increase with age can provide perspective. The average scores by age group show this progression: 680 (18-26), 690 (27-42), 709 (43-58), 745 (59-77), and 760 (78+).

Want to learn more about improving your score? Check out our guide to building your credit score for additional strategies.

First Steps to Establishing Credit

Now that you understand the importance of credit, let's explore practical ways to start building it. The path to excellent credit begins with these fundamental steps.

Open a secured or student credit card

Secured credit cards require a security deposit that typically equals your credit limit, starting at $200. This deposit reduces the lender's risk, making these cards accessible for beginners. With responsible use, Discover begins automatically reviewing accounts after 7 months to potentially upgrade you to an unsecured card.

Alternatively, student credit cards are specifically designed for college students. The Discover it® Student cards offer a minimum credit line of $500 plus cash back rewards that match at the end of your first year.

Become an authorized user on a trusted account

Becoming an authorized user on someone else's credit card account is one of the simplest ways to start building credit. The primary cardholder's payment history appears on your credit report, potentially improving your score.

Remember that the primary cardholder remains responsible for all charges. Before proceeding, confirm that the card issuer reports authorized user activity to all three credit bureaus.

Start with a credit builder loan or joint account

Credit builder loans work differently than traditional loans – your money is held in an account until you complete all payments. These loans typically range from $500 to $3,000 with terms of 12-24 months.

Joint accounts are becoming less common but can help someone with less positive credit history gain access to better interest rates. Both cardholders are equally responsible for all charges, regardless of who made them.

How to start building credit at 16 or 18

At 16, your options include becoming an authorized user on a parent's credit card or establishing employment history. Having a job doesn't directly build credit but demonstrates financial responsibility to future lenders.

Once you turn 18, you can open your own secured card, apply for a student credit card if enrolled in college, or consider a credit-builder loan. For more comprehensive strategies, check out our guide to building your credit score.

Smart Habits That Strengthen Your Score

Once you've established your first credit accounts, adopting smart financial habits becomes essential for strengthening your score. These practices will help transform an average score into an excellent one over time.

Make payments on time, every time

Your payment history accounts for approximately 35% of your FICO score, making it the single most influential factor in determining your creditworthiness. Even a single payment that's 30+ days late can significantly damage your credit score and remain on your report for seven years.

To maintain a perfect payment record:

• Set up autopay for at least the minimum payment due

• Create calendar reminders for due dates

• Register for text or email payment alerts through your card issuer

• Consider scheduling multiple smaller payments throughout the month

Consistently making on-time payments not only boosts your credit score but also helps establish trust with financial institutions, potentially leading to better loan terms in the future.

Keep balances low and avoid maxing out

Credit utilization (the percentage of available credit you're using) constitutes about 30% of your credit score, making it the second most important factor. Maxing out your cards pushes this ratio to 100%, which can seriously damage your score.

Experts recommend keeping your overall utilization below 30%, but those with the highest credit scores typically maintain single-digit utilization rates under 10%. For young adults still building credit, staying well below your credit limits demonstrates responsible usage.

To maintain low utilization, consider paying your balance multiple times per month rather than waiting for the due date. You can also request a credit limit increase after establishing several months of responsible usage.

Use credit monitoring tools to stay informed

Credit monitoring services track activities on your credit report and alert you to changes, helping you catch potential errors or fraud early. For young adults building credit, these tools provide valuable insights into how your actions affect your score.

Many free services exist that allow you to check your score regularly and receive alerts about significant changes. Services like Experian's free monitoring tool provide access to your Experian credit report along with regular score updates.

Monitoring your credit regularly is one of the most effective ways to improve your score. By spotting issues early, you can dispute inaccurate information or address potential problems before they cause lasting damage to your credit profile.

Long-Term Credit Health and Mistakes to Avoid

After establishing good credit habits, protecting your long-term credit health becomes essential. Making strategic decisions about your existing accounts and avoiding common pitfalls will help maintain the strong foundation you've built.

Don't close old accounts too soon

Keeping older credit accounts open directly benefits your credit score. The length of your credit history makes up 15% of your FICO® Score. When you close an older card, you potentially lower the average age of your accounts, which can decrease your score.

Even if you're no longer using a particular card, consider keeping it active if it has no annual fee. Closed accounts remain on your credit report for up to 10 years, but they no longer contribute to the ongoing aging of your credit history.

For young adults specifically, maintain your oldest accounts to establish a strong credit foundation by demonstrating your ability to manage available credit responsibly. I recommend checking out our guide to understanding whether closing a credit card hurts your score for more details.

Avoid unnecessary hard inquiries

Hard inquiries occur when you apply for credit and can temporarily lower your score by 2-5 points each time. These inquiries stay on your credit report for two years, although their impact diminishes after 12 months.

To minimize hard inquiry impact:

• Use pre-qualification offers that involve soft inquiries instead of hard pulls

• Group loan applications within a 14-45 day window (depending on the scoring model) to count as a single inquiry

• Space out credit card applications, as these are not grouped like auto or mortgage applications

For more information about hard inquiries, check our detailed guide on how long hard inquiries stay on your report.

How to recover from early credit mistakes

Made some missteps? First, focus on payment history—it accounts for 35% of your score. Paying every bill on time going forward helps demonstrate responsible credit management, gradually improving your score.

Next, tackle your credit utilization by paying down revolving balances (especially credit cards). Consider a debt consolidation loan if you're struggling with high-interest debt.

If you're overwhelmed, working with a credit counseling agency can provide financial education and debt payoff assistance. Visit our article on credit counseling for guidance.

Best way for young adults to build credit over time

Ultimately, consistently practicing good credit habits is the most effective long-term strategy. Maintain a perfect payment record by setting up autopay for at least minimum payments. Keep your utilization rate below 30%—ideally under 10%.

Monitor your credit regularly using free services to catch potential errors or fraud early. Remember that credit missteps eventually fade—most negative items remain for seven years, but their impact diminishes over time.

For comprehensive strategies to build excellent credit, check our complete guide to building your credit score.

Conclusion

Building credit as a young adult sets the foundation for your entire financial future. Throughout this guide, we've explored practical steps anyone can take to establish credit from scratch. Remember, your payment history makes up 35% of your credit score, making on-time payments absolutely crucial to your success.

Starting early gives you a significant advantage. Whether you begin as an authorized user at 16 or open your first secured card at 18, each positive month of credit history strengthens your financial profile. Avoiding common credit card application mistakes will help maximize your approval chances from the start.

Most importantly, focus on keeping your credit utilization below 30% – ideally under 10% – while monitoring your credit regularly for errors or unexpected changes. These habits, combined with patience, will gradually transform your credit from non-existent to excellent over time.

Additionally, be strategic about maintaining older accounts since they contribute positively to your credit age. Should you close your credit card? The answer usually leans toward keeping accounts open, especially those without annual fees.

The journey to excellent credit isn't complicated, but it does require consistency and discipline. By following the steps outlined in this guide, you'll build a solid credit foundation that opens doors to better apartments, lower insurance rates, and more favorable loan terms throughout your life. Your future self will thank you for starting this journey today!

FAQs

Q1. What's the quickest way for a young adult to start building credit? The fastest way to start building credit as a young adult is to become an authorized user on a parent's credit card with a good payment history. Alternatively, you can open a secured or student credit card once you turn 18, or consider a credit-builder loan designed specifically for credit establishment.

Q2. How can an 18-year-old with no credit history begin building their credit score? An 18-year-old can start building credit by applying for a secured credit card, which requires a security deposit that typically equals the credit limit. Another option is to apply for a student credit card if enrolled in college. Making small purchases and paying them off quickly and consistently can help establish a positive credit history.

Q3. What credit score should young adults aim for? Young adults should aim for a credit score in the "good" range, which is typically between 670-739. While the average credit score for Gen Z (ages 18-26) is around 680, striving for a score above 700 can open up more financial opportunities and better terms on loans and credit cards.

Q4. How long does it usually take to build a good credit score from scratch? Building a good credit score from scratch typically takes about six months to a year of consistent, responsible credit use. To achieve an excellent score of 800 or higher often requires several years of careful credit management, including on-time payments and maintaining low credit utilization.

Q5. What are some common credit-building mistakes young adults should avoid? Young adults should avoid maxing out their credit cards, as high credit utilization can negatively impact their score. They should also refrain from applying for multiple credit cards in a short period, as this can result in too many hard inquiries. Additionally, it's crucial to always make payments on time and avoid closing old credit accounts, as these factors significantly affect credit scores.

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