How Does an 18 Year Old Build Credit to Buy a Car?

Once you turn 18, you can legally enter into a contract, but that doesn't mean you'll necessarily qualify for most credit accounts or a car loan. If you can get that first account, however, having a short credit history can help you out due to the way the FICO model handles new borrowers. Just make sure you never miss a payment or run up a large bill.

Standard Credit Card

A parent can add you as an authorized user to his account at any time. This helps you build credit based on your parent's credit. You do not receive the bill, and if the parent feels uncomfortable giving you access to the account, does not need to let you use the card to build credit. Of course, this only benefits you if your parent doesn't carry balances over from month-to-month and pays on time. As an alternative, if your parent feels you are ready, under the Credit Card Accountability Act of 2010, or CARD Act, those under 21 can get a credit card if they can verify income or if a parent co-signs.

Secured Cards

Being willing to put down a few hundred dollars as a deposit and pay a yearly fee almost assures you a secured credit card account. The deposit makes this type of account so low risk that rejections are a rarity. However, the creditor must report to the major credit agencies or else this is a futile effort. Most of the top banks report to the bureaus, so the BCS Alliance suggests going with a well-known national bank.

Alternative Credit Bureaus

Alternative credit bureaus let you report payments that typically do not build credit with the major bureaus, such as rent and cell phone contracts. However, you will have to go to the agency and pay them to verify your payment history with a company -- lenders usually only report data to the three major credit bureaus. If, for example, you wanted an alternative agency to report payment history on a cellphone contract, you would have to seek out an alternative credit bureau, sign up for their service and send in documents like canceled checks and statements from the cellphone company. Lenders might accept an alternative credit score when you have no traditional credit history, but this is not a guarantee. Thus it is usually better to go for an account that reports to Equifax, Experian and TransUnion -- the major credit agencies in the U.S.

Tip

Do not open too many accounts at once and, instead, work on paying the monthly bill and avoid carrying any debt. After about six months you should have sufficient history for the credit bureaus to calculate a credit score. While a short credit history is usually a bad thing, it could help you if you have a perfect credit file. The credit bureaus use a different formula for young buyers and only compare them to people with short histories, so a good credit history could put you far ahead of the pack of other borrowers in your age group.

When Are You Ready?

Once your score reaches about 620 you can probably qualify for a car loan, but not at a reasonable rate. It pays off in the long run to hold off until your score gets into the 700s or higher.