ne of the most important aspects of adulting is understanding, building, and using credit. From taking out loans to using credit cards, credit will be the centerpiece of many of the decisions you make as an adult. So let’s discuss why it’s a good idea to start building credit at 18, as well as the best ways to do so.

What is Credit?

You can think of credit as the business world version of borrowing money. You borrow money through things like taking out loans and using credit cards, with the promise of paying that money back in full and on time. Having good credit allows you to do all sorts of wonderful things like take out larger loans, have a higher limit on your credit card, and qualify for high-value cars and homes. Having a low credit score can lock you out of many of these things and prevent you from doing the things you want unless you have the money for it right then and there. 

An image of Wimpy Wellington from Popeye
This is the character Wimpy from Popeye. His catchphrase is a great way to think about how credit works on a basic level. Image courtesy of Linkedin.

What is a Credit Score?

Your likelihood of paying loans back on time is called your credit score. This score is what gives you access to higher credit limits, lower interest rates, and better loans. Your credit score is typically calculated using some of the following factors-- 

  • Your payment history
  • The number of loans you’ve taken out
  • The type of loans you’ve taken out
  • The amount of unpaid debt you have
  • How long have you had an active credit account
  • How much credit do you use in relation to your maximum available credit

What Are Loans and How do You Use Them?

So what exactly is a loan? It’s more than just borrowing a sum of money with the promise of paying it back. Most loans can be obtained through financial institutions like banks, a credit union, or even the government. Loans are typically broken down into four pieces-- 

  • The principle
  • The interest
  • Your term
  • Your installment plan

The principle is the amount of money you borrowed from your lender. It is separate from your interest. Your interest is the amount of additional money that you will need to pay based on the amount of time it takes you to pay the loan back in full. The rate by which your interest increases each month is known as your interest rate. 

Sometimes your interest rate will be determined prior to your application. This is often the case for credit card rates and student loans. Other times, your interest rate will be calculated by the loan provider using a variety of factors such as the type of loan you're taking out, your credit score, and how long it will take for you to pay the loan back. 

The time it’s expected for you to pay your loan back is called your term. Loan terms can vary depending on the type of loan you’ve decided to take out. Most personal loans have a term between 2 and 7 years, while things like student loans can land you a term of 10 years or more. That amount of time may seem a bit off-putting but don’t worry about it too much. Terms are created with your minimum payment amounts each month in mind. If you want to speed up the process, all you have to do is pay more than your minimum each month. If you want to learn more about the different types of loans you can use as an adult, check out this article.

A calendar on a smart phone
Be sure to keep the dates for each of your monthly payments saved in your phone’s calendar! Image courtesy of Hongkiat.

Finally, there is your loan installment plan. This is how much money you will be paying on your loan each month. This value is often fixed, meaning it shouldn’t change month to month. If you have trouble paying the value specified in your loan installment plan contact your loan provider immediately, most of the time they will have options available to assist you.

If you don't have student loans or car loans yet, you can also use a credit building app like Cheese. You'll take out a loan and gradually pay it back... to yourself. You'll get your money back at the end, but it builds your credit in the meantime.

What Are Credit Cards and Why Should You Use Them?

You can think of a credit card as a smaller-scale version of the loans we covered earlier. These cards will allow you to make purchases up to a designated limit under the promise that you will pay that amount back. Generally speaking, credit cards are often used to make smaller-scale purchases for things like clothes, food, and electronics. They are also used for buying things in emergency situations, like if your home’s heater goes out in the middle of winter, or if you need immediate car repairs.

Credit cards share many similarities to loans. Such as monthly payments and interest rates. The amount you pay on a credit card each month is determined by the amount of money you’ve spent using that credit card. This is known as your credit card balance. Credit cards are the most common method used for building credit. 

A clothing store offering a sale
Sometimes you just can’t miss a sale, moments like this are a great time to break out the credit card and pick up that item you’ve been dying to get your hands on. Image courtesy of Unsplash.

How do You Build Credit at 18?

So here we are, the main question you came here for. While building credit is important, if you’re not careful you can end up putting yourself in a position where you end up lowering your credit score instead of raising it. This was why we needed to go over the basic concepts of loans and credit cards. It’s also going to make explaining the credit-building process much easier if you are familiar with loans and credit cards before diving into this section.

We discussed what a credit score was earlier but here is where it really becomes relevant. If you want to build credit at 18, you’ll want to do things to raise your credit score as much as possible. The good news is, you're already taking the first steps toward raising your credit score! The earlier you start building credit the better. Remember, the time you’ve had your credit account factors into your credit score.

The next step for raising your credit score is to have a job. “What does having a job have to do with raising my credit score?” Well, in order to build credit you’ll need to either take out a loan or get a credit card. You have a higher chance of getting approved for both if you have a job. Also, how are you going to pay the money you borrow back if you don’t have a job? 

A girl outside on her laptop
No job? No problem! There are also options available for students. Image courtesy of Unsplash.

If you aren't in a position to work because you’re a student in high school or college, you can also ask your parents to make you an authorized user. An authorized user is someone who has been given permission to use another person’s card. This option is a bit tricky since you and the person you're authorized with will have their credit scores affected by one another's actions. You will also need to discuss this process with your credit card company so you can confirm that they report authorized users, otherwise your score won’t be affected by this process.

If you have a job and can qualify for one, a starter credit card is a great option for building credit at 18. You can also consider applying for a student credit card. These cards tend to have lower credit limits to prevent you from spending outside a reasonable amount you can pay back. You also don’t have to be a student to qualify for these cards at certain providers, you will have to meet other requirements such as your age.

A young man holding a jar of savings
There are also ways to save your money while also building credit. Image courtesy of Unsplash.

Another method you can use to build credit at 18 is to apply for a credit builder loan. These loans are designed for people with limited to no credit. Unlike a standard loan where you take out the loan amount up front after applying, these loans require you to make monthly payments on the loan amount you want first and at the end of the loan term, you will receive the loan amount back in full. It’s a great way of preparing you for actual loan payments as well as raising your credit score. You can think of it as putting money in a savings account each month, only you get to build credit while you do it!


I’m sure all of this felt like a lot of information to take in at once, and this was only scratching the surface, but try not to let that discourage you. If you really want to build credit at 18 or even younger, you should discuss the process with your parents/guardians and see what option they recommend for you. You can also contact a loan provider or credit card company and see what options they have available that best fit you. I hope you use this blog as a jumping-off point for your journey to a high credit score.

Sep 22, 2022