Why Does a Teen Need to Start a Credit Score?

One key component of a person's financial life is his credit score, a three-digit number ranging from 300 to 850 that consumer lenders use to approve or deny applications for loans or credit cards. Teenagers and young people generally do not consider finances, preferring to focus on school, social activities and other aspects of life. Nevertheless, establishing a good credit score as a teen carries many advantages.

Student Loans

Many students rely on loans to pay for the costs of attending college or university. Although college students do not need an established credit history to qualify for low-interest federal loans, such as Stafford and Perkins Loans, they do need already-established financial histories and good credit scores to qualify for private student loans. Having the option to take out private loans is important for students attending expensive colleges, because the government limits students to borrowing a maximum $5,500 per semester in federal loans.

Job Prospects

Employers, including those hiring for entry-level positions typically filled by teens or college students, often check applicants' credit scores before making hiring decisions. A poor or nonexistent credit history could prevent a young person from getting his first job. For this reason, building a good credit score as a teen gives a person an advantage when looking for a part-time or entry-level job or internship position.

Preparing for the Future

After graduating from high school or college, many individuals obtain loans to purchase cars and homes. Although these events are years away for most teens, a person's credit history is a long-term consideration. Credit cards and loans contribute to a person's credit score for as long as they are active, while negative credit information, such as collection accounts and late bill payments, stay on a person's credit report for seven years. Building a solid credit score as a teenager gives a person a head start on his adult financial life.

Considerations

A student credit card is one way for a teenager to begin building a positive credit history. Student cards function much like their standard counterparts, except they typically carry lower credit limits and allow parents to view transactions. Additionally, the federal CARD Act states that teenagers -- or anyone under 21 -- need an adult co-signer or proof of sufficient income before opening a credit card. Most student credit cards report to the credit bureaus on a monthly basis, allowing teens without prior credit histories to begin building positive credit. To get a good credit score effect by using a student card, an individual must use no more than 30 percent of her available credit and pay the balance off every month.