Expert: Yan Ross - 12/1/2009

Question
when I turn 18 how can I start making good credit?  

Answer
Yasmin,

From your question I assume you are near to but not yet 18.

Do you know whether you already have a credit report file with the 3 credit reporting agencies?

I would suggest that you go to www.annualcreditreport.com (that is the official web site for consumers to access their credit reports -- don't confuse it with other portals for selling you other services).

You can establish your identity and request a free copy of your credit report -- then you will know whether you already have a credit file.

If you do, you may also want to get (pay for, it's not free) your credit SCORE.

The main important point, though, it to make sure that IF you have a credit report, and IF there is any erroneous information in it, that you have a chance to make corrections, so you start out with an accurate report as you turn 18.

If you do not have a credit report yet, then you will be starting fresh (not a bad thing).

As you probably know already, you have to establish a record of borrowing and paying loans in accordance with their terms in order to have a good credit record -- and that takes time.  At the same time, it;s not something to rush into, just to establish a credit record.

In the due course of things at your age, you will probably face opportunities to use credit for personal and educational purposes.  Some of this credit (a good example would be student loans) does not depend upon your having borrowed money before -- unless (of course) you have borrowed and not repaid a loan, and there's a negative item on your credit report.

As you may be aware, the recently-enacted Credit Card Act has a provision that will soon take effect which will prohibit credit card companies from issuing credit cards to people of your age unless certain requirements are met -- such as proof that they can comply with the terms of credit and/or provide a qualified co-signor for the account.  

It may be to your advantage to get a credit card -- but only if you are already educated in the ways to use credit wisely and not as a means to gratify your immediate consumer urges.  (One of my friends refers to such spending as "buying things you don't need, with money you don't have, to impress people you don't like.)

While I would not encourage you to borrow money just to establish credit, it would certainly be appropriate for you to begin to consider the reasons you might need to use a credit facility for such things as higher education.

So you will need to look at your circumstances and decide the purposes for which you might want to use credit, and then pursue the means of establishing a good credit record.

I might also suggest that you obtain and study some of the excellent publications on use of credit by young people, or take a course on the subject.   In that regard, I should mention that I also work with the Institute of Consumer Financial Education.  If you would like to know more about the Institute's work, take a look at www.icfe.info

I hope that helps.

Good luck!