How to Build Credit as a Young Person

Want to know how to build credit as a young person, as a college student, or when you're otherwise just starting out? As someone who struggled with this particular problem myself, I'd love to help you.

Just to clarify the problem to make sure we're on the same page:

You don't already have an established credit history. You want to build said credit history, but when you go and apply for credit cards or loans, they tell you that you need an established credit history.

Are the banks insane?

Yes, they are. But there are some simple things you can do to get over this hurdle and start building some credit for yourself.

And the best part is that once you have a little bit of credit, getting a lot more isn't all that hard. It took me years to get approved for my first credit card, but then the pre-approved offers with favorable interest rates and terms started pouring in.

So What Can You Do to Establish a Credit History Starting Out?

There are several things you can do, but here's the catch: some are more favorable (for you) than others, and some are not going to be an option for everybody. Unfortunately, the less favorable options are usually the less exclusive, but we're just going to have to play with the hand we were dealt.

Here are your options, top to bottom, from most preferable to you to least:

• Cosigners
• Piggybacking
• Student Credit Cards
• Secured Credit Card

Option #1: Getting People to Cosign with You

This is pretty much as favorable as it gets. By using someone else's signature, you can get approved for cards that normally you would never be approved for.

The catch is that when someone cosigns for you, they are just as responsible for the loan or credit card as you are. If you default on your obligations, then their credit will be dinged just as badly as yours.

This is a risk that many people are not willing to take. It's usually a parent who would cosign for their offspring, but this is straight up not an option if your parent does not trust you or if your parent has poor credit themselves.

Option #2: Piggybacking

Piggybacking is sort of related to cosigning, but many people (again, usually family) who will not be willing to cosign for you will be willing to let you "piggyback", so long as you explain the concept to them properly.

When you "piggyback" on someone else's credit, you are essentially using their credit history as your own. This can be extremely powerful, and it can take just one piggyback'd credit card to let you start getting approved for offers on your own.

Also, the person who owns the credit history you're piggybacking doesn't even have to "let" you use their credit card -- they can add you, but not give you your copy of the card. I've done this for my girlfriend when she needed some help, and when her copy of the card came I just cut it up and put it in the trash. Low risk.

I don't want to go into more detail here because I want to get on with the article, but if you'd like to learn more about piggybacking, download my free credit improving guide here.

Option #3: Student Credit Cards

This one will be brief -- banks tend to be much more eager to give credit cards to students than they are non-enrolled adults with similar credit history. Unfair? Perhaps, but it's true.

From the bank's perspective, the idea is that someone who is currently enrolled in college has a higher chance of being responsible with the money and of being able to pay it off later. They also want to get you into debt at at young age.

This bias can be frustrating for people like me, who were not enrolled in any school when they tried to start building credit. Still, for students, the option is out there.

Option #4: Secured Credit Cards

This is the option that you'll often see recommended -- and in my opinion, it's only a "last resort."

A secured credit card is basically a credit card which acts like a bank account -- you have to have the money to spend "deposited" with the lender before you can use it. The catch? Unlike a bank account, secured credit cards will require you to pay interest and sometimes fees.

In a nutshell, a secured credit card is a card that has the disadvantages of a credit card, while carrying none of the advantages. Still, for some people it is the only realistic way to build credit, as options 1, 2, and 3 above will not work for their unique situation.

If you do decide to go the secured credit card route, my advice to you is to only use it to build your credit. Be done with it as soon as possible, and move on to some real credit cards.

I hope that this article helped you. If you'd like to understand more about what factors contribute to your credit score, read some of my other articles on this site.

And make sure to join my credit advice newsletter below before you leave! It's chocked full of information and tips that I don't mention in my articles.