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How young people can build their credit

Key Points
  • Young people shouldn't wait until they graduate college to start building their credit history.
  • Yet 20 percent of people ages 18 to 22 have no credit report, according to data by credit rating company VantageScore.
  • Here are some ways they can start.
Students walking on college campus.
Jon Sim | Twenty20

Young people shouldn't wait until they graduate college to start building their credit history.

Yet nearly 20 percent of people ages 18 to 22 have no credit report, according to data by credit rating company VantageScore.

People in that age range who have a credit card have an average score of 672, compared with 589 for those who don't. Scores typically start at around 300 and go up to 850.

"Establishing credit is just like getting a job," said Ted Rossman, an industry analyst at Creditcards.com. "Everyone wants you to have experience."

To start ...

Rossman recommends applying for a student credit card. "They're pretty easy to get, but there are still training wheels like a relatively low credit limit," he said.

You can compare different student cards on a number of websites, including NerdWallet and Bankrate. "Pay close attention to annual fees, interest rates and special incentives like reward programs," said Bruce McClary, vice president of communications at the National Foundation of Credit Counseling. Some student cards offer unique benefits to students, such as cash back for good grades.

To avoid being charged interest, only put expenses on your card that you'll be able to pay off each month, especially since rates are at record highs.

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Credit boost

If you're not approved for a credit card, you can apply for a secured card, in which you put down a deposit that becomes your credit line, said Matt Schulz, chief industry analyst at Comparecards.com. "Be sure that the card's issuer will report your payment history to the credit bureaus so you can start building your history," Schulz said.

"Start by putting small recurring purchases on it that you know you'll be able to pay off each month — your membership to Netflix or some other streaming service is a perfect example," he said. Typically within a year, you'll be able to graduate to a regular credit card.

You can also ask a parent, if he or she has a positive payment history, to add you to one of their credit cards as an authorized user. You'll benefit from their responsible habits, Rossman said.

Building your score without a credit card

Making payments on your student debt while you're still in school could improve your credit, according to SavingForCollege.com.

That's because your score is determined in part by your ability to repay debt. You'll also reduce your debt-to-income ratio — how much you owe, compared with what you make — which is another factor in your credit rating. Even $25 a month can be a help, said Mark Kantrowitz, publisher of SavingforCollege.com.

Your monthly rent may also be another opportunity to raise your credit score. Although these payments aren't usually reported to credit rating companies, there's a number of businesses that help you add the transactions to your credit record, according to SavingForCollege.com.

Those include PayLease, Rent Track and Rental Kharma. Some of these companies charge fees, however, and not all credit companies will accept the information.

The three big firms that generate credit reports for consumers are Experian, Equifax and TransUnion. You're allowed a free report from each of these companies a year, according to the Federal Trade Commission.

"It's important for people to understand that credit is a marathon and not a sprint," Schulz said. "It's about doing the right thing over and over again for years and years."

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.