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Establishing Credit

Importance of Establishing Credit When Young

Dear Experian,

Why is it important to establish credit while you're young? If I don't establish any credit will it affect my future and why?

- OZY

Dear OZY,

Establishing credit and learning to use it wisely when you are young can make your transition to adulthood much easier.

Why Establishing Credit Young Is Important

A positive credit history is about more than just being able to use a credit card to buy things. Your credit history may be considered by potential employers when you are looking for your first job. It may play a part in approving your apartment application. And, it will be critical for buying your first car so you can get to work every day.

If your job requires you to travel, you may need a good credit history to qualify for a corporate credit card used to rent a car, purchase airline tickets, pay hotel bills and buy dinner for clients. Even though you are reimbursed, most company cards are personal accounts.

While you can establish credit after graduating from college, it's more difficult to be out on your own if you haven't already begun building a strong credit history beforehand.

As a truly independent adult, you will need to be able to rely on your credit history for everything from getting a cell phone and utilities in your name to qualifying for the best car insurance rates. Your credit history will play a big role in whether your applications are approved. It will also determine how high your interest rates will be and whether you are asked to pay additional security deposits.

Without an established credit history, it becomes more difficult and potentially costlier to get an apartment, a credit card, or a loan.

Establishing and Understanding Credit

If you've never had credit in your name before, lenders may be reluctant to approve you for your first credit account without a cosigner. Still, there are several ways to begin establishing credit when you are just starting out:

  • Authorized user and joint accounts. Having your parents include you as an authorized user or joint credit card account holder is an easy first step toward building a positive credit history. Equally important, you can help your parents review the monthly statements and perhaps even help make payments. Learning about the entire credit process, from making a charge to paying the bill, will help you manage credit well when you get out on your own. Understanding the responsibility to make every payment on time is the key to using credit to work for you, rather than becoming a slave to credit.
  • Secured cards. If you don't have a cosigner, consider applying for a secured credit card. With a secured card, you give the bank a certain amount of money as a deposit in exchange for a credit card you can use to make purchases. If you use the account responsibly, the lender may eventually convert it to a traditional credit card account.

Applying for Credit

College students, especially those over 21, are often considered prime customers because they are likely to be financially successful and have proven to be loyal customers over long periods of time. As a student, you may receive a variety of offers.

Many credit card companies only open accounts based on prescreened applications offered to consumers whose credit history meets their risk requirements. If you don't have a credit history, you may not get the best offers.

Even if you often get tempting offers, that doesn't mean you should complete every credit card application you receive. Be selective. Only apply for accounts that offer the incentives you want and need. Those might include low interest rates, low or no annual fees, or even airline miles you can use to travel home between semesters. If there's an annual fee, be sure the benefits are enough to justify the cost.

Always be careful not to spend more than you can afford. Smart students use credit for convenience, but they don't incur debt.

Responsible credit use while you are younger can build a strong credit history that will help you get your adult life off to a strong start when you set out on your own.

Thanks for asking.
Jennifer White, Consumer Education Specialist


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