Establishing Credit at Age 17: Your Options

Quick answer

• Explore becoming an authorized user on a trusted adult’s credit card.
• Consider a secured credit card, which requires a cash deposit.
• Look into student credit cards designed for young adults.
• Get a co-signer for a credit-builder loan or a traditional credit card.
• Start with a small, manageable credit limit and use it responsibly.
• Always pay your bills on time, every time.
• Monitor your credit report regularly for accuracy.

Who this is for

• Young adults aged 17 who are looking to build a credit history.
• Individuals preparing for future financial milestones like renting an apartment or buying a car.
• Those who want to understand and manage their credit responsibly from an early age.

What to check first (before you act)

Goal and timeline

Before diving into credit-building options, clarify why you need credit and when you’ll need it. Are you aiming to rent an apartment in a year, buy a car in three years, or simply establish a good credit score for general financial health? Your timeline will influence the best approach. For instance, a longer timeline allows for more gradual credit building, while a shorter one might require more aggressive, though still responsible, strategies.

Current cash flow

Understand your current income and expenses. Building credit responsibly means being able to afford the payments associated with it. Review how much money you have coming in and going out each month. This will help you determine how much credit you can realistically manage without overextending yourself. Accurate cash flow assessment prevents missed payments, a major credit score killer.

Emergency fund or safety buffer

Ensure you have some savings set aside before taking on new financial obligations. An emergency fund can cover unexpected expenses, preventing you from relying on credit cards for emergencies. This buffer is crucial because unexpected costs can derail even the best credit-building plans, potentially leading to missed payments if you don’t have accessible cash.

Debt and interest rates

Assess any existing debt you might have, even if it’s small. Understand the interest rates associated with any loans or existing credit. High-interest debt can quickly become unmanageable and hinder your ability to build good credit. Prioritize paying down high-interest debt before taking on new credit, or ensure any new credit you acquire has a manageable interest rate.

Credit impact

Understand how different actions affect your credit. Applying for too many credit accounts in a short period can negatively impact your score. Similarly, missing payments or carrying high balances will significantly harm your credit. Research how each potential credit-building method might influence your credit report and score before committing.

Step-by-step (simple workflow)

Step 1: Assess your financial readiness

What to do: Review your income, expenses, savings, and any existing debts.
What “good” looks like: You have a clear understanding of your monthly cash flow, a small emergency fund, and no high-interest debt that would prevent responsible credit use.
A common mistake and how to avoid it: Overestimating your ability to repay. Avoid this by creating a detailed budget and being realistic about your spending habits.

Step 2: Define your credit goals

What to do: Determine why you need to establish credit and by when.
What “good” looks like: You have specific, realistic goals (e.g., “I want to be able to rent an apartment in 2 years”) that inform your strategy.
A common mistake and how to avoid it: Not having a clear goal. Avoid this by writing down your objectives and the timeline associated with them.

Step 3: Research credit-building options for minors

What to do: Investigate options like becoming an authorized user, secured credit cards, student credit cards, or co-signed loans.
What “good” looks like: You understand the pros and cons of each option and which best fits your situation and goals.
A common mistake and how to avoid it: Choosing the first option you find without comparison. Avoid this by making a list of available options and comparing their features and requirements.

Step 4: Discuss with a trusted adult (if applicable)

What to do: If considering becoming an authorized user or co-signer, have an open conversation with a parent or guardian.
What “good” looks like: Both parties understand the responsibilities and potential risks involved, and an agreement is reached.
A common mistake and how to avoid it: Assuming the adult will handle everything. Avoid this by clearly defining who is responsible for payments and communication.

Step 5: Apply for a secured credit card

What to do: Open a secured credit card, depositing a cash amount that will serve as your credit limit.
What “good” looks like: You have a card with a reasonable limit and understand the terms, including any annual fees or interest rates.
A common mistake and how to avoid it: Not understanding the deposit requirement. Avoid this by reading the cardholder agreement carefully before applying.

Step 6: Use your credit card responsibly

What to do: Make small, planned purchases that you can afford to pay off immediately.
What “good” looks like: You are using the card for everyday expenses you would have made anyway and can pay the full balance each month.
A common mistake and how to avoid it: Treating it as free money. Avoid this by only charging what you can pay off in cash by the due date.

Step 7: Pay your bill in full and on time

What to do: Set up automatic payments or reminders to ensure your statement balance is paid by the due date.
What “good” looks like: Your payment is always received by the credit card company before or on the due date, and you are paying the full statement balance.
A common mistake and how to avoid it: Making only the minimum payment. Avoid this by always aiming to pay the full statement balance to avoid interest charges and build a strong payment history.

Step 8: Monitor your credit report

What to do: Obtain your free credit reports from AnnualCreditReport.com and review them periodically.
What “good” looks like: You can access and understand your credit report and have identified and disputed any errors.
A common mistake and how to avoid it: Ignoring your credit report. Avoid this by scheduling regular check-ins (e.g., twice a year) to review your financial health.

Step 9: Gradually increase credit utilization (if using a card)

What to do: As your credit history grows, you may consider increasing your credit limit or using slightly more of your available credit, but always keep utilization low.
What “good” looks like: Your credit utilization ratio (amount owed divided by credit limit) remains below 30%, ideally below 10%.
A common mistake and how to avoid it: Maxing out the card. Avoid this by being mindful of your balance and paying it down frequently, even before the statement due date.

Step 10: Consider other credit-building tools (optional)

What to do: Once you have a solid history with one card, you might explore a second credit-builder tool if it aligns with your goals.
What “good” looks like: You have successfully managed one credit product and are ready to expand responsibly.
A common mistake and how to avoid it: Opening too many accounts too quickly. Avoid this by allowing ample time to demonstrate responsible use of your initial credit product.

Common mistakes (and what happens if you ignore them)

| Mistake | What it causes