Credit 101: Helpful tips for teens and young adults

Learning about personal finances at a young age can lay the groundwork for becoming a knowledgeable, financially savvy adult. As teens and young adults begin to earn money, handle expenses, and prepare for independence, understanding credit and debt management can be an essential part of developing healthy financial habits. These practical credit tips for teens can help them learn how credit works, avoid common mistakes, and build a strong credit history that supports future financial goals.

The importance of early financial planning & building credit for teenagers

Financial planning for teens can include learning common financial terms, understanding how to create and stick to a budget, and gaining the knowledge to start building credit responsibly. Good credit can open doors later in life and make it easier to get approved for student loans, car loans, rental applications, and their own credit cards. Here are 5 credit tips for teens to help them start building good financial habits early:

Understand what credit is and how it works

It might be helpful to explain that credit is the ability to borrow money with the promise to pay it back later, often with interest. Since understanding how credit scores are calculated is a good first step toward using credit responsibly, discussing payment history, amounts owed, and length of credit history can provide a good foundation. It’s also important young adults know how opening new accounts can impact their score, especially if it’s too many in a short amount of time. In general, a higher credit score can make it easier to qualify for a loan and potentially provide better loan terms or interest rates.

Consider a starter credit card

Teens with credit cards may seem like a scary thought, but with proper guidance and clear boundaries, using credit early can teach lasting lessons about financial responsibility. Many banks offer starter credit cards for teens with low limits to provide a safe introduction to credit and debt management.

Always pay on time

One of the most important lessons in building credit for teenagers is paying bills on time. Even one missed payment can hurt their credit or cause them to fall behind. Setting reminders or using autopay to stay on top of due dates can help build a strong payment record.

Keep balances low

Teens may see the available credit amount and think there’s a lot of room for spending. A high balance can negatively impact a credit score, so encouraging your teen to only spend what they can afford to pay back each month could be beneficial. Starting slowly and making smaller purchases can help build healthy habits. A good rule of thumb is to use less than 30% of the credit limit and pay off the balance in full each month to avoid interest charges.

Monitor accounts regularly

With today’s technology, many credit cards can be monitored online or through an app which makes it easy to keep an eye on balances, schedule reminders, and make payments. This helps promote a proactive approach to managing credit and can help teens understand how each action can positively or negatively affect their credit health.

How to establish credit for a teenager

Establishing credit for a teenager is about building a record of on-time payments and responsible use of available credit over time. Depending on age and income, options can include being added as an authorized user on a parent or guardian’s card, opening a secured or student card at 18+, or using small credit-builder loans; some services may also report rent or cell phone payments. You can start with solid money-management habits—bank accounts, budgeting, low balances—and apply sparingly to limit hard inquiries, while monitoring accounts regularly to spot issues early. Because issuer policies and reporting practices can vary, reviewing requirements before applying can be a good idea.

Explore Secured credit cards options

A secured credit card can be a good “training wheels” tool for your teen once they’re 18. It works like a regular credit card, but the spending limit is usually backed by a refundable cash deposit (often equal to the limit). The big win: most issuers report on-time payments to the credit bureaus, helping your teen establish a track record. This factor is important, and one you might consider when selecting a card – if the issuer doesn’t report your teen’s payment history to credit bureaus, it won’t help establish their credit.

Take advantage of piggyback credit

Piggyback credit, adding a teen as an authorized user on a parent or guardian’s well-managed credit card, can help them start building a credit history under guidance. The primary cardholder retains control (often setting a low spending limit or holding the physical card), while the teen benefits if the issuer reports authorized-user activity to the credit bureaus. Keeping balances low, paying on time every month, and reviewing statements together can help bring the best results. Note that not all issuers report authorized users to all three bureaus, and some credit scoring models weigh authorized-user data differently; late payments or high utilization may negatively affect both parties’ credit.

Midland National is here to help with financial planning for your family’s future

Building good credit may seem like a big responsibility for teens, but starting early with the right habits can make a lasting difference, especially as they graduate from high school. As your teen builds good money habits, it can be helpful to pair day-to-day skills with a longer-term plan for protection and savings. A financial professional can help you explore options and determine what may be appropriate based on your goals, time horizon, and risk tolerance.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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