ORLANDO, Fla — Establishing good credit while young can make a big difference in how people manage finances as they grow older. There are steps they can take to make sure they start off on the right foot.
These days teens and young adults are bombarded with ads for fancy gadgets, the latest fashion, and flashy cars. Falling into a spending trap is something 22-year-old Andres Agudelo learned at a young age he wanted to avoid.
“Yes, you can have nice clothes but is that going to be helping you out in the future?” Agudelo questioned when sharing his credit journey with Action 9 Consumer Investigator Jeff Deal.
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When he moved to the United States from Columbia at age 15, his stepdad convinced him having good credit and being smart about spending were two keys to success. So, Agudelo started with his local bank.
He said, “I asked them, ‘Can I open a credit card?’ They told me that I have no credit history.”
The path he chose was getting a secured credit card. That means putting money into an account that can be used as a backup if someone doesn’t make their payments. At Fifth Third Bank the minimum amount is $300, so that’s the amount he put into his account. Agudelo used the card for small purchases and paid in full, on time, each month.
Katrina Spangler, Regional Manager for Fifth Third Bank in central Florida said, “They use the card just as they would a normal card, but it is a safe and effective way to build that credit.”
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Spangler noted their secured credit card program has been very successful. Generally, in about a year, a secured card user who does it right, can graduate to a cashback card and have an average FICO credit score near 730.
Aside from a secured card, another option is for parents to add a teen on their account as an authorized user. This gives parents the opportunity to monitor purchases while still allowing the teen to establish credit.
In either case, to build up a credit score, they shouldn’t max out the card. Spangler recommends cardholders use less than 30% of their credit limit. So, with a $1000 limit, that would be keeping charges under $300. Making payments on time and accepting credit limit increases, if offered, will also help.
Katrina Spangler said the main advantage of building good credit is bring offered lower rates when they need to borrow money, especially for large purchases.
“In reality, good credit is going to get you better interest rates. It’s going to save you money in the long run,” Spangler said.
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For Andres Agudelo it worked. At age 21, he used his established credit to buy a car. Now, the 22-year-old and his fiancé are buying their first home. He said starting out learning to manage his credit as a teen taught him to spend responsibly and put him in this position.
Agudelo said, “I like to do stuff. I like to travel. I like to enjoy my life, but you have to find the balance.”
It’s important to know, some secured cards have annual fees and if someone doesn’t pay off their balance, high interest rates could hurt them. Spangler said they’ve seen if a parent or even a grandparent makes sure kids stay consistent with payments, it can make a big difference in helping them establish good credit.