Things you need to consider while building credit at 16

By: on 2018-07-03
Ask tiarajoseph11
Things you need to consider while building credit at 16
Things you need to consider while building credit at 16

Can you start building credit at 16? Most of the professionals in the credit industry would say “yes, you can”. But, you must remember that it’ll require a responsible, grown-up mind to build credit at 16. Most of the 16-year-olds are employed and are prepared to begin balancing their income and expenses while building a credit score.

A recent study by ID Analytics LLC, a consumer risk management research firm, revealed - "63% of young millennials do not have a credit card. It’s not that there isn’t a demand for credit cards among millennials, approximately 35% of new card applications are made by millennials, it’s that they are frequently denied due to a lack of history and/or low scores"

Here are few more of their ID’s research findings:

  • Two-thirds of consumers under 30 have poor to good credit scores.
  • Less than half of millennials have a credit score that is strong enough to qualify them for any kind of credit account.
  • 6 out of 10 millennials are denied and not seen applying again for at least 12 months.
  • Millennials are the largest generation of US consumer but have lower credit activation rates than baby boomers.
  • According to this research, the biggest obstacle for millennials is a lack of credit history and/or poor credit scores.
Data courtesy -

There are some good ways to follow by which teenagers can build a credit history as they begin to construct their financial future.

1 Apply for a secured credit card

Secured credit cards are provided by banks and other big financial companies that report to the credit reporting agencies. Secure cards have a fixed credit limit based on a security deposit on that account; the deposit varies from $300 - $500. It also has a grace period, low or no annual fees, and a high-interest rate compared to unsecured credit cards. Parents may transfer money from their account to their kids’ credit account, or the kids can deposit money directly to their bank or send a money order.

Teenagers might have the tendency to exceed the given credit limit. But, in this case, the credit limit is equal to the amount deposited into their account. The limit usually is also not so big. So, When it happens, your kids won’t be able to use that credit card unless they deposit funds into that account.

The card requires a minimum balance as per the agreement. So as long as the account maintains a minimum balance, the bank will report the account as in "good standing" or "as agreed" to the credit reporting agencies.

This way, you can start building credit at 16 through a positive approach.

2 Open a cell phone account

A 16-year-old can open a cell phone account. If he/she pays the bill on-time, the credit reporting agencies will be informed that the account is current. This will boost the credit score and create a positive credit history.

Being a 16-year-old, you must keep in mind that a cell phone plan is the most accurate factor that can measure the amount of money the teenager earns and is able to pay each month.

3 Become an authorized user of your parent’s credit card

Parents can allow their teenage child to be an authorized user on their credit card or checking accounts. The main drawback of this process is that if the parent becomes late on payments or even can’t pay bills due to a hardship, the teenager's credit might also get a blow. On the other hand, if parents have a good, stable income and enough financial backup to help their kids, the kids can easily build a good credit score along with sharp money managing skills.

4 Get a car loan

A great way for a 16-year-old to build credit is getting a car loan. Kids will get a responsibility on their shoulders to pay off the loan properly. It will encourage them to build credit, save money for their transportation, and also manage their office work properly. The more they can concentrate in their work, they will earn more and able to pay off the loan.

Parents might need to co-sign for the loan if the kid is still a minor. But if the kid perform his/her responsibilities correctly, the end result will likely be a positive credit history, with a more stable financial future.

5 Check your credit report at least once per year

The three major bureaus - Experian, Equifax and TransUnion, will offer a free report once every 12 months. Being a teenager it is your duty to visit at least once a year and get your free credit report.

Being a 16-year old, you might have opened an account for the first time. But by accessing your personal details, someone else may have done it way before you know it. Yes, it's possible. So, what will you do? You need to find out that illegal account by checking your credit report. As soon as you find out about it, dispute it and fix the error.

Periodically checking your credit report may give you the opportunity to maintain your finances and restore a positive credit history.

Last Updated on: Tue, 3 Jul 2018

With proper help you can
Get FREE debt counseling and assistance
  • Lower your monthly payments
  • Reduce credit card interest rates
  • Waive late fees
  • Reduce collection calls
  • Avoid bankruptcy
  • Have only one monthly payment
How much debt consolidation
can save you
Copyright © 2018  DebtConsolidationCare Official Blog