The Importance Of Building Up Your Credit When You’re Young

It’s a likely fact that sooner or later you’ll require some form of credit, even if only a mobile phone contract. In order to be offered credit you’ll need to demonstrate a track record of responsible money management which is checkable by lenders when assessing whether to provide credit or not.

Credit rating

When you apply for credit such as a loan, credit card or even a mobile phone contract the company concerned will check your credit history. This is made up of several factors; chief among them being your financial history, such as how you’ve run your bank account, previous loans, credit cards and more.

The lender will compile a rating based on the information they know about you and this will determine whether they’ll lend to you and, if so, on what terms. For example, if you’re applying for a student credit card, your credit rating will help the provider decide what your credit limit will be.

Your credit record

As you open bank accounts, take out loans and credit cards, make payments and generally go about your financial business a credit history is built up and kept on file with three major credit agencies – Callcredit, Experian and Equifax.

A potential lender will use one or all of these credit reference agencies to help build a picture of your financial activities.

Person Hands With Digital Tablet Showing Credit Score

The need to build a strong credit record

Obviously the better your financial management the more likely a lender will be to offer you the facility you’re applying for.

Therefore, it’s wise to start building a credit record as soon as practical – it’s no exaggeration to say no credit record is as bad as a poor one. Without a way of assessing your ‘risk’ to them, a lender is unlikely to offer you anything.

How to build a credit record

Without overextending yourself or taking unnecessary risks, you can build a strong credit record from a young age.

  • Electoral roll – make sure you’re on it; even if you’re a student or moving about a fair bit because of job changes, take the two minutes or so to register online.
  • Bank account – manage it carefully and don’t exceed any overdraft facilities.
  • Pay bills on time – meeting loan repayments, utilities and phone contracts promptly is a simple way to boost your credit score.
  • Credit card – choosing an appropriate one and using it carefully will help your credit rating; use it for smaller amounts to keep it ‘active’ but beware of temptation. DON’T use it to withdraw cash at an ATM; transactions are recorded on your credit report and may look as if you’re using your credit card as a ‘last resort’ to access cash even if this isn’t the case.
  • Credit building – as with using a credit card, using a loan to ‘build credit’ could be considered. Lenders such as Avant Credit will record your repayments with credit reference agencies to help build your credit history. The key is to borrow an amount you can comfortably repay.
  • Space out applications – don’t apply for too much at the same time. Applications for credit are recorded on your credit file and too many in quick succession can be a negative for potential lenders.

Careful credit building

Along with the need to build a credit history is the importance of making it a good one – any defaulting, late payments, or seeming to disappear because you forgot to register on the electoral roll when moving out when you left university, will require some credit rebuilding.

*This is a collaborative post.

This article has 37 comments

  1. Stacie @ Divine Lifestyle

    This is such a great post. I know so many young adults who don’t understand the incredible importance of having good credit. Love this.

  2. Catherine Sargent

    This is a great post. My son is 20 and he just recently got his first credit card to help build his credit. He is using it for gas and food and paying it off every month.

  3. Kathryn

    After having financial problems when I was younger I think there should definitely be more accessible financial and credit information out there for young people and this is such an interesting and valuable read xx

    • Sarah-Louise Bailey

      I think it is something that should be taught in schools – we seem to forget there is a lot me need to know when we grow up and not everyone has someone who can help teach them (or perhaps they do but don’t listen). x

  4. Pam

    Having good credit is so important. It is never too early to start building your credit.

  5. Reesa Lewandowski

    This is such an important post! I wish I had this information when I started college. I remember credit card reps were all over campus offering freebies left and right and I really wrecked my credit when I was younger!

  6. Christine Dodd

    Managing money is so important – I worked in finance for 30 plus years so understand credit ratings. You don’t get a good one without proving you can borrow and repay properly.

  7. Brandy

    This is such an important post! It’s so important to start building your credit when you’re young.

  8. Kelly Hutchinson

    I must admit, I wish I could have a do-over on my credit. I have made some mistakes that have followed me for a lot of years. I hope my daughter will treat her credit rating with respect.

  9. Liz Mays

    These are definitely things they don’t seem to teach in school. It’s really nice to have a head start when heading out into the world.

  10. Dawn McAlexander

    This is something that I have tried to stress to my daughter. If she wants to buy a house someday, she needs to establish her credit and keep it good.

  11. kristi

    Great tips. I wish every high school kid or college student could have a crash course in this stuff… so many make some tough mistakes with money.

  12. Crystal

    I got my first credit card when I was 18. I was really good about making monthly payments. It definitely helped when I got to be around 25 and had years of great credit on my report.

  13. Amanda Love

    I take very good care of my credit as it’s important for me to have a good credit score especially now that I’m thinking of moving. I think these are good guidelines!

  14. Jeanine

    I never cared about my credit when i was younger. I didn’t really start caring about it until recently when I realized I had no credit so I got 2 credit cards to help

  15. Ann Bacciaglia

    It is so important to build up your credit when you are young. I have taught my kids the importance to pay your bills on time and in full. When it is time to buy their first car they will thank me.

  16. Marcie W.

    I definitely did not understand the importance of credit as a young adult and suffered the consequences. Thankfully I was able to get back on track and now make it a point to discuss these subjects with my children to hopefully help them avoid making the same mistakes.

  17. Ourfamilyworld

    Oh, this is a wonderful topic. Credit is so important and we should start building it when we are younger.

  18. Kimberly Croisant

    YOu are so right. I have had good – no excellent credit for a long long time, and I contribute that from how I managed my credit when I was young. YES< Very Important. START YOUNG

  19. Lisa Joy Thompson

    Most people don’t realize how much goes into building your credit. And while I’m a big fan of paying cash for everything, having good credit is super important so that you can do big things like purchase a house!

  20. Kita Bryant

    The applying for too many applications is a great tip! My husband and I were trying to build and got too much too fast.

  21. Theresa

    Definitely no credit is just as bad as bad credit, but many don’t realize that. This is great information that will help a lot of young people take the necessary steps to ensure good credit when they are young.

  22. mary

    See I wish I had read this a long time ago. I had no idea how important building credit was until my late twenties

  23. Annemarie LeBlanc

    I think learning to handle finances should start early. When my children were young, I encouraged them to save money off of their allowance. I even asked my bank if they had some kind of “kiddie account” (luckily they did). It made them happy to see how much money they had in the bank. Teaching them the difference between “need” and “want” also made a big impact. They are now all grown adults and handle their finances very well.

  24. stephanie

    This is so important. I’m not sure that many young people realise that what you do when you’re young in terms of credit can have a massive effect on your future – thanks for sharing x

  25. Melanie Edjourian

    I agree, making sure you build up a good credit rating at a young can really help later in life.

  26. Christina Aliperti

    I am working on this with my son right now. I don’t want him to make the same mistakes that I made with my credit.

  27. Margaret Gallagher

    So important to avoid financial disaster
    Thanks unfortunately too many fall foul so young

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