Almost 17, emancipated minor looks to build credit

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I have recently been emancipated and am just about to turn 17. I want to get an early start on working on my credit. Would there be any way(s) that I could go about doing so? -- Brad 

Dear Brad,
How exciting! As an emancipated minor, a fresh set of legal rights is now open to you. Emancipation grants you the rights of an adult, even though you are younger than 18. The exact laws concerning your newfound freedoms vary a bit by state. For example, depending on where you live, you may or may not have to wait until you're 21 to drink alcohol legally.

No matter where you are, though, you can probably make some very grown-up financial decisions that you couldn't have made before your status changed. One of them is the ability to sign binding contracts. That means you can obtain a credit card or a loan from a bank without needing a parent or other adult to add their signature to the documents. 

I'm glad you're interested in establishing your credit, and a credit card is a great place to begin. Plastic permits you to do all sorts of things that cash or debit cards (which just draw from the money in a checking account) can't. You can buy what you want immediately, but don't have to pony up the funds for it right away. Purchasing items online is safer with credit cards, and booking hotel and car reservations is also easier than with cash.

When you use credit well, you also become more appealing to future landlords and employers. If you're seeking either, there's a strong chance that they will check up on your credit history. A consumer credit report that indicates a long pattern of you borrowing money and then satisfying it according to the terms of the contract will certainly work in your favor.

So speaking of contracts, that's the paperwork (electronic or actual) that you sign when you open a credit card account or take out a loan from a bank.  Most youths who are emancipated can enter into a legally binding contract, so you're good to go.

Or are you? While dealing with creditors as an individual can be wonderful, it also comes with some dangerous consequences. If you break the contract by not paying them back, they can sue you in a court of law. You want to avoid lawsuits with every fiber of your being. Not only can a judgment (what you owe after losing a case) ruin your credit and saddle you with a massive burden for many years, but the creditor may also be permitted to garnish your wages or take some of your stuff.

Additionally, your credit reports and the scores that are derived from them will be negatively impacted if you pay late or max out your credit card for many months. The lender will send the derogatory activity to the credit reporting bureaus and your rating will tank. Most negative data sticks for seven years, so you've got to be careful.

OK, warnings aside: Here's how you can get started!

Have a job? If not, you'll need one, as issuers want to see that you're employed. After all, if they're going to lend you money, they'll also want to be pretty sure that you can pay them back.

Next step is to save some money. Since you're a neophyte, most issuers would like to have some added assurance. In other words, collateral. Squirrel away at least a few hundred dollars and go for a secured card. These types of accounts are perfect for emancipated minors who have not yet entered into the world of banking. Qualification standards are more generous than unsecured products because they can take the deposited funds if you don't repay your balances as promised.

Search for a secured credit card that looks right for your needs and situation. Make sure that the card will report your payments to the major credit bureaus.  Once approved, deposit the required sum. Then, charge regularly, spending only what you will repay in full so you never keep a balance. Pay on time, every time. Then, after a year or so, you can move forward by applying for a regular, unsecured credit card -- and they'll give it to you because the credit bureaus have a record of your pristine payment record. To make sure you're on track, check your FICO credit score (about $20 from myFICO.com) and your credit reports (free once a year from the top three credit bureaus at AnnualCreditReport.com) to see where you stand.

I recommend you read "FICO's 5 factors: The components of a credit score" to gain a clearer understanding of all the elements that go into creating a great credit score.

Good luck! 

See related: New to credit, behind on bills, worried about job hunt, Rejected: How your credit history impacts card approvals

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: January 23, 2013

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