How Young Adults Can Establish Credit Without Breaking the Bank

How Young Adults Can Establish Credit Without Breaking the Bank

by | Jun 3, 2024

Establishing credit from scratch can feel like an uphill battle when you’re a young adult on a tight budget. But having a solid credit history is important when it comes to making a major purchase, such as a car or even securing an apartment. The good news is there are low-cost strategies to help you establish credit without breaking the bank.

Key Takeaways

  • Low-cost strategies for establishing credit with little to no credit history include:
    • Becoming an authorized user on a family member’s credit card
    • Applying for a secured credit card
    • Considering a credit-builder loan
    • Opening a student credit card
  • Maintaining the following good credit habits is essential:
    • Pay bills on time
    • Keep credit utilization low (below 30%)
    • Monitor credit reports and dispute inaccuracies
    • Report on-time bill payments to credit bureaus
  • Establishing credit early provides advantages such as access to better loan rates.
  • Establishing credit with lower-risk products such as secured cards and credit-builder loans can help reduce the potential negative impact of mistakes while gaining experience.

First, Get the Credit Basics Down

Before starting the journey to reaching your credit goals, it’s essential to understand what credit is and why it matters. Your credit score represents your creditworthiness – in other words, how reliable you are at repaying debts.

This score is calculated based on several factors, including:

  • Payment History (35%): Whether you’ve paid bills on time.
  • Amounts Owed (30%): How much you owe compared to your total credit limit.
  • Length of Credit History (15%): How long you’ve had credit accounts open.
  • Credit Mix (10%): The variety of credit types you have, such as revolving (credit cards) and installment (loans).
  • New Credit (10%): How often you apply for new credit.

Get familiar with credit lingo such as credit utilization (the percentage of available credit you’re using) and hard inquiries (when a lender checks your credit during an application).

Next, Try Low-Cost Strategies for Establishing Credit

Having no credit history can make it challenging to get approved for loans and credit cards, but there are ways to establish credit from the ground up without overextending your finances.

1. Become an Authorized User on a Family Member’s Credit Card

One option is to ask a family member with good credit to add you as an authorized user on their credit card account. This can allow you to piggyback on their positive credit habits and gain credit experience, despite not being fully responsible for the account. Just be sure the primary account holder has a good payment history, as their credit mistakes can impact your credit too.

2. Apply for a Secured Credit Card

Secured credit cards require a refundable security deposit that typically becomes your spending limit. This deposit helps reduce the lender’s risk, making approval easier for those with no credit history. Use the card responsibly by keeping balances low and paying on time each month, and the account can help establish a good payment history.

3. Consider a Credit-Builder Loan

With a credit-builder loan, the lender deposits a small sum into an account while you make fixed payments over time. Once you’ve paid the full loan amount, the money is released back to you – plus you’ve established a credit history that’s reported to the credit bureaus.

4. Open a Student Credit Card

Many major issuers offer credit cards designed specifically for students with little to no credit experience. These cards usually have lower credit limits and may qualify for student-based incentives. Making small, monthly charges that you promptly pay off can help kickstart your credit journey.

Don’t Forget to Maintain Your Credit

Establishing credit is an important first step, but maintaining good credit habits is crucial for keeping your scores in peak condition. Here are a few key tips:

Pay Bills on Time

Your payment history is the most influential factor impacting your credit scores. Set up payment reminders, enroll in autopay, or use budgeting apps to help ensure no bills slip through the cracks. A few late payments can negatively impact your credit score.

Keep Credit Utilization Low

Credit scoring models generally look for revolving utilization below 30%. Higher utilization ratios can suggest a risk of overspending. Aim to pay balances in full each month when possible.

Monitor Credit Reports

Mistakes happen, and inaccurate negative items on your credit reports could negatively impact your credit score. Check your reports regularly and dispute inaccuracies immediately.

Report On-Time Bill Payments

Recurring payments for rent, utilities, subscriptions, and other bills typically don’t get reported to the major credit bureaus. But asking for these positive payment histories to be added to your credit files can help you reach your credit goals.

Why Young Adults Should Establish Credit Early

Building a solid credit history takes time and discipline. The earlier you start, the better – because having an established credit record can help make you a far more attractive candidate for loans and credit cards with favorable terms, apartment rentals, and more.

Not only does an established credit history grant you more financial flexibility and freedom, but it can also save you thousands over the life of a loan by qualifying for lower interest rates.

More importantly, forming responsible credit habits now helps create a strong foundation for your financial future. The lessons of making on-time payments, keeping balances manageable, and monitoring your reports can pay off for years to come.

While pretty much everyone makes mistakes as they gain experience, establishing credit with lower-risk products such as secured cards and credit-builder loans can help reduce the potential negative impact of mishaps. So, if budgeting blunders or life’s curveballs throw you off track, you’ll have more time to reset and rebuild.


How long does it take to establish credit from scratch?

It typically takes six months to one year of responsible credit usage to start establishing credit history and credit scores. The length of your credit history also impacts your scores, so the longer you maintain good habits, the higher your scores can climb.

Is it better to get a secured credit card or become an authorized user?

Both options can help you establish credit, but they have pros and cons. Secured cards allow you to establish credit independently while being an authorized user allows you to piggyback on someone else’s payment history. The right choice depends on your personal situation and spending habits.

How much should I put down for a secured credit card deposit?

Most secured cards require a deposit of around $200 or more, and this typically becomes your credit limit. Start with an amount you can comfortably pay – you’ll eventually get that deposit back after upgrading or closing the account responsibly.

Can maxing out my credit card limit negatively impact my credit scores?

Yes, high credit utilization can negatively impact your credit scores. It’s generally recommended to keep your overall utilization below 30% of your total credit limit.

Do checking or savings accounts affect my credit?

No, deposit accounts such as checking and savings have no direct impact on your credit scores. However, issues such as unpaid negative balances or accounts sent to collections can be reported and factor into your credit scores.

Bottom Line

Achieving good credit may feel like an unattainable dream when you’re scraping by on a tight budget. But with the right strategies and responsible habits, establishing your credit from scratch doesn’t have to break the bank. And with MyScoreIQ services, monitoring your credit along the way is a breeze.


Premier Credit Monitoring.

Receive premier credit monitoring and identity theft insurance for you and your family with our MAX plan.**

*Source: Fair Isaac Corporation.

**Underwritten by AIG.

FICO is a registered trademark of the Fair Isaac Corporation in the United States and other countries.

Copyright © 2024 IDIQ® provider of MyScoreIQ® services | All Rights Reserved

Follow us on social