For Teens and Young Adults: Should I Start Building my Credit?

I saw this question from a reporter this morning and don’t want to wait until their publication comes out before I address it myself.

Accelerating Credit Card Repayment For teens and young adults, when should they start building their credit? What the parents are actually asking is this: should my child open a major credit card in their own name?

My simple answer is this: NO! At least not until the teen/young adult can answer ALL of the following questions with a strong, “YES:”

  1. Have you gone two years without bouncing a check or having a debit card purchase declined?
  2. Have you made on time, monthly payments to a utilities account (electricity or heat) or to a contracted cell phone in your name for the past year?
  3. Do you have regular income?
  4. Have you saved money from every paycheck for the past year without later “raiding” (emptying) your savings account?
  5. Have you set up and have you transferred money each month to an automatic retirement savings account, such as an IRA (Roth or traditional) or a 401(k)/403(b)?

If you can’t answer yes to ALL of these questions, I’d suggest you concern yourself with building a better history of money management before worrying about credit management.

Here are some alternatives:

  1. Can you get a card on your parent(s)’ credit card account as an “authorized” user? If so, you will inherit some of their good credit rating. Plus, it’s generally free.
  2. Put a utility account or cell phone contract in your name and make monthly payments on time and in full.

If you do move in the direction of opening a credit card or store credit in your own name, start small. Report your card usage to your parents each month to help keep you on track and to avoid incurring too much debt.

Good luck, and enjoy your week!

Todd Christensen
Everyday Money for Everyday People
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