Most kids start their financial journeys with a piggy bank or savings account. Once they get a job, they might open a checking account and start using a debit card. Some wise kids even have retirement accounts.
But none of those accounts build credit.
Many people wait until adulthood to start filling their credit reports, but those who establish credit early have an advantage. New adults with a credit history usually find it easier to rent an apartment, set up utilities, get a cell phone, buy a car, and more.
If you’re a 17-year-old that’s ready to start building credit, you have a few options for how to do so. Today, I’m going to go through those options so you can make a choice that’s best for you.
Why Should You Start Building Credit Early?
Building good credit (and the good credit habits that go with it) can lay your financial foundation for years to come. Doing so should build a respectable credit score—a numeric representation of your creditworthiness used by people who might lend you money, lease you an apartment, or offer you an ongoing service like a cell phone plan.
Credit scores are assigned once someone turns 18, and most teens will begin with a score of under 600. But look at the results of a Step survey showing what kinds of savings an 18-year-old user with a score of 725 could expect versus 18-year-olds with lower credit scores:
- Car insurance: $147 per month instead of $250 per month
- Student loan: 6.24% interest rate instead of 10.46%
- Security deposit: One month’s rent instead of two months’ rent
So, it’s easy to see how important it is to get a jump on building credit early. It not only helps with needs down the road (e.g., getting a mortgage, car loan, or other important line of credit), but it also helps with costs you pay and opportunities you may have today.
Do You Have a Credit Score at 17?
People under the age of 18 typically don’t have a credit score, though there are a few reasons a minor may have a credit report. The reasons a minor may have a credit report are as follows:
- The minor is an authorized user on a credit card account.
- Someone with a name similar to a minor obtained credit and the reporting company mistakenly created a credit account for the minor.
- An identity thief took out a loan in the minor’s name and the credit reporting company made a credit file with information about loan payments.
In other words: In most situations, credit scores begin at age 18. However, if you want to do something to build a decent credit score before age 18, I can show you a couple of ways to do that.
At What Age Can You Start Building Credit?
It’s possible to start building credit as a minor, but you’ll need help from a trusted adult and your options will be a bit more limited. However, if you’re 17 years old and looking to build credit, consider the methods below.
How to Build Credit at 17
Below, I’ve detailed three different steps you can take to build credit at age 17.
1. Become an Authorized User on Your Parents’ Credit Card
A traditional method for giving children a head start in establishing credits is parents adding their children as authorized users on their credit card(s). When you have a credit card, your credit card company reports usage and payment history to the credit bureaus—data agencies that collect and report credit data, which banks and other financial firms use to determine whether to provide you with credit or a loan. The same goes for authorized users.
Credit card issuers have varying rules for what age a child has to be to be added as an authorized user; some have no age minimum.
The process is both simple and effective:
- Call your credit card company and ask about the requirements for adding your child as an authorized user. If they meet the requirements …
- Either via phone with your credit card company, or via your credit card’s online dashboard, request to add your child as an authorized user.
- When available, provide your child with an additional card. (Not all card companies provide additional cards to children who are authorized users.)
However, there are some potential downsides. For one, if the parents use their credit card poorly, it could have a negative impact on the authorized user, undermining the entire aim of adding them in the first place.
Also, some parents will list a child as an authorized user, but not actually give the child access to the credit card. Yes, an authorized user will enjoy credit-building benefits regardless of whether they actually use the card, but this fails children in a different way. Namely, while it’s establishing good credit, it’s not establishing good credit habits—they’re not learning how to use the card.
2. Get a Secured Credit Card
The biggest difference between secured and unsecured credit cards is that the former requires you to put down collateral to open an account, whereas the latter doesn’t.
Unsecured credit cards are what you’d consider a “traditional” credit card, where the credit card company checks your credit score, income, and other information before deciding whether to let you open an account. Once open, you spend on the card, then pay it back.
With a secured credit card, the credit card company will still do a credit check, but applicants must also give a cash deposit to the credit card issuer to open an account. This security deposit is often the same amount as the line of credit. (For instance, a person might provide a $200 deposit and receive a $200 line of credit.)
Because the credit card holder can keep the security deposit if payments aren’t made, these cards are deemed less risky to issuers, and thus it’s easier to get approved for one.
But you use secured cards the same way you would an unsecured credit card. You spend, then you pay the card off. The same guidelines apply, too: Don’t outspend your credit limit, and make timely payments every month.
Payments to these credit accounts are usually reported to at least one major credit reporting agency. The on-time payments show you are responsible and have the means to pay back any money you owe, so it helps you build a positive credit history.
Unfortunately, most secured credit cards (including college student-focused credit cards) are meant for adults.
However, one secured card—the Step Visa Card—is designed for minors.
Step Banking (Secured credit card account)
- Available: Sign up here
- Price: Free (no monthly fees)
- Platforms: Mobile app (Apple iOS, Android)
The Step Visa Card is a unique “hybrid” secured credit card that’s tailor-made for kids and teens. It functions just like a Visa credit card, but it offers the safety features of a debit card—and most importantly, it can help build your child’s credit history.
Parents, who sponsor the card, can opt to have Step report the past two years’ worth of information—transactions, payment history, and more—to the credit bureaus when their child turns 18. Credit scores are assigned once someone turns 18, and most teens will begin with a score of under 600. But based on a Step survey, 18-year-olds who used Step for at least seven months had an average credit score of 725.
Debit card-like features
Parents can add money directly into their child’s FDIC-insured Step account. A regular Step account allows a child to have both a physical spending card as well as a virtual card in the Step app, while a Parent Managed Account only allows the child to spend via a physical card. Children can use both the virtual and physical cards to spend anywhere Visa is accepted, and they can use the physical card to withdraw money for free at more than 30,000 ATMs.
And parents needn’t fear their child overdrafting—they can’t spend any money they don’t have.
Other features include Savings Goals, where any money saved can generate 5% in annual interest (compounded and paid monthly) with a qualifying direct deposit*; Savings Roundup, where purchases are rounded up to the nearest dollar and the overage is put toward a Savings Goal; an “invest” function that allows users age 13 and older to buy and sell Bitcoin; and opt-in cash or Bitcoin rewards from companies including Hulu, Chick-Fil-A, CVS, and the New York Times.
The Step Card is protected by Visa’s Fraud Protection and Zero Liability guarantee. That means if your teen’s card gets lost or stolen, or misplaced and fraudulent charges crop up, you can dispute the charges within a certain time frame to avoid liability for paying.
What happens when my teen turns 18?
Step also provides a seamless experience for teens who “graduate” into young adulthood. When they turn 18, Step allows cardholders to keep their old credit card number and account, doing the legal heavy lifting in the background to get them appointed as the legal owner of their account, and transitioning them to an independent account. Everything—from how they access the app to their account numbers to their investments—stays the same from their perspective, and Step continues reporting credit on the same “credit line,” which allows them to keep building their credit history.
3. Co-Sign or Co-Borrow a Car Loan
An auto loan agreement is a type of contract, and teens under age 18 cannot legally enter a contract. However, some places (but not all) will let 17-year-olds have an auto loan if there is an adult co-borrower.
The adult co-signer or co-borrower would be responsible for the loan if the teenager failed to make payments. With a co-borrower, both people have legal rights to the car. When a teen and parent co-sign an auto loan, the loan is in the teen’s name.
Timely payments for the auto loan can help build credit. Missed payments could negatively affect both people’s scores. Having an installment loan can also help a teen’s credit mix. Getting a car loan gives a teen the means to get around, but without them having to drain a savings account to buy a car outright.
What Goes Into Your Credit Score?
Above is a look at how FICO Scores—a popular brand of credit score widely used by banks and other institutions to determine your creditworthiness—are determined.
Payment History (35%)
The most important factor in your credit score is payment history. Those who always make on-time payments to a credit card account or other loan are more likely to have a higher score than people who frequently miss payments.
Credit Utilization (30%)
It doesn’t necessarily hurt your score to owe a lot of money if you have extensive credit lines. What affects your score is your credit utilization. When people use a high percentage of their available credit, it’s a sign that they might be overextended and could have a higher risk of defaulting.
Length of Credit History (15%)
FICO scores also factor in the age of your oldest and newest accounts, the average age of your accounts, the length of time specific credit accounts have been established, and how long it has been since you’ve used certain accounts. A longer history is beneficial to your score, but you can still have a good score without a lengthy history.
Credit Mix (10%)
While you don’t need every type of credit account, having a good credit mix is useful. In other words, in addition to credit cards, it can help to have some type of installment loan, such as a student loan.
New Credit (10%)
Although it’s good to have a credit mix, opening several new credit accounts within a short timespan can be seen as a red flag, particularly for people with short credit histories. Opening many new accounts at once can temporarily harm one’s score.
Start Checking Your Credit Report
You’re never too young to check your credit. Even if you don’t expect to have anything in your credit report, it can be useful to look at a report to check for identity theft.
Visit AnnualCreditReport.com to get a free credit report per year from all of the major credit bureaus.
How to Build Credit at 17: FAQs
When can you get an unsecured credit card?
To get your own unsecured credit card, you need to be a legal adult, meaning you have to be at least age 18.
However, just because you are at least age 18 doesn’t mean you will necessarily qualify for an unsecured card. You might first need to begin building a credit history by becoming an authorized user on another person’s credit card, or getting a secured card, or taking on another type of loan first.
Does having multiple lines of credit help with building credit?
Yes, there can be benefits to having multiple lines of credit. For one, having multiple credit cards can lower one’s credit utilization ratio, assuming your spending habits remain the same. If you have a credit mix, such as a revolving account (like a credit card) and an installment account (like a car loan), it can help with credit as well.
However, I don’t recommend that you apply for multiple credit lines within a short period. Needing several new lines at once can make you look risky to lenders, and establishing several new lines of credit in a short time can temporarily harm your credit score.
Are there alternatives to getting a credit card at 17?
Yes. If you want to build credit, but not get an unsecured credit card, consider the options below.
Become an authorized user
When minors become authorized users on credit cards, it helps them build credit, which makes it an excellent option for 17-year-olds.
Getting a teen debit card
Teenagers that want to practice making smart financial decisions can consider getting a checking account that provides them with a debit card. Using a debit card requires a user to know how much is in the account and it can create financial responsibility. Debit cards are typically connected to checking accounts, rather than savings accounts.
Getting a secured card
A secured card can both help a teenager build credit and let them practice using a credit card. Secured card issuers typically report on-time payments to credit reporting agencies, which helps a teen build credit. This type of card has a low credit limit and requires a security deposit, but still functions mostly the same as an unsecured card.
What’s the difference between a credit card and a debit card?
A credit card gives users access to a line of credit. You use the line of credit to make purchases and then make payments later. When you use a debit card, funds are taken directly from a checking account.
There are pros and cons to both types of cards. A debit card prevents you from getting into credit card debt. You can’t spend more than you have in your bank or credit union account, unless your checking account lets you overdraft a certain amount.
While a credit card used irresponsibly can lead to debt, having a credit card account also helps a person build credit. Credit cards also offer superior fraud protection compared to debit cards and some have excellent rewards programs.