Building Credit in High School
Find out how to establish good credit while still in high school.
There are many upcoming milestones in your life that will require you to have a good credit score or at least the beginnings of a credit history: renting an apartment, securing a car loan, even getting a job now that more employers are running credit checks as part of the interview process. We have a list of ways you can start to build a strong credit history and score while in high school, but first, it’s important to understand what credit is and how your score is calculated.
What credit is
Credit is borrowed money you promise to repay a lender (credit union, bank, credit card company) over time with a fee, called interest. It’s how you make a purchase when you don’t have all of the money up front. The interest charged on a loan or credit card is a percentage of the amount borrowed.
Lenders need a way to know how risky it is to lend money to a person. What are the odds a particular person won’t be able to pay them back? This is what a credit score tells lenders. The higher your score, the less of a risk you are and the better interest rate you’ll receive on a loan. The lower your score, the more likely they will be to turn down your loan application or charge a high interest fee.
How your credit score is calculated
The most popular scoring method used by lenders in the U.S. was developed by the Fair Isaac Corporation (FICO) and uses a scale of 300 to 850:
- 750 and above is excellent
- 700–749 is good
- 650–699 is fair
- 550–649 is poor
- 550 and lower is bad
Five factors affect your credit score:
- On-time payments (≈35% of the score)
- Capacity, or how much of your available credit you’re using (≈30%)
- Length of credit history (≈15%)
- New credit accounts recently opened (≈10%)
- Types of credit being used (≈10%)
Ways to build credit in high school
- Get a job. Although holding down a consistent job doesn’t help you establish credit, it is a key factor in qualifying for credit when you do apply for a loan or low-interest credit card. In fact, the CARD Act of 2009 requires young adults under 21 to prove they have enough income to repay credit card debt when they apply for a credit card.
- Become an authorized user on a parent’s credit card. If you’re under 18, one option is to be added as an authorized user on a parent’s credit card (you can also do this if you’re over 18). This allows you to basically “inherit” the account holder’s credit standing and score. However, this also means their bad habits will affect your credit score and vice versa, so make sure you and your parents understand what you will use the credit card for and how you will pay them back. Also be sure the credit card reports authorized users to the three national credit bureaus that track credit reports and scores.
- Get a secured credit card. If you’re already 18 or older, you can apply for a secured credit card, which require a security deposit that dictates your credit limit. If you put in a $500 security deposit, you’d have a $500 credit limit to borrow against, making payments each month to repay what you’d spent of that $500. It’s easier to qualify for these kinds of cards, and they do help build credit.
- Get a student credit card. For current and soon-to-be college students, student credit cards have less strict qualification requirements, often don’t charge annual fees, and reward responsible behavior, like cash-back for good grades.
- Practice good credit card habits. Wherever your path to establishing a credit score starts, it’s important to practice good habits from day one. Good credit habits include paying off your credit card balance every month (this means you won’t have to pay interest and won’t overspend) and always paying on time.
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