Photo: Monkey Business Images (Shutterstock)
With all the wisdom you have now, imagine if you could turn back time and get a head start building good credit from an early age. While you can’t change history for yourself, you can help your own kids build a strong financial foundation—and from an earlier age than you might realize. Even if your kid isn’t old enough to have a credit card, there are steps you can take to start building their credit history now.
A good credit history will make it easier for your kid to rent their first apartment, land better interest rates, and save thousands of dollars throughout their life. Here’s what you can do know to help your teenager establish good credit for their future.
Make sure they don’t already have a credit report
First off, take a minute to make sure your kid isn’t the victim of error or identity theft. Even if you thought your teen had a clean credit slate, it doesn’t hurt to contact a credit bureau and check your child’s credit. Better safe than sorry.
Add them as an authorized user to your card
Before you set your kid up with a credit card of their own, you can add them as an authorized user to a long-established credit card you already use. This could help your teen build credit as long as your card issuer reports information to the credit bureaus and the credit bureaus include that information on credit reports. If this information doesn’t show up in a credit report, it might not make a difference for their credit.
G/O Media may get a commission
Once your teen is old enough to have their own credit card, you can remove them as authorized users from your card. Don’t be scared if your kid’s credit has a slight dip—this is temporary, and will bounce back quickly as they use their new card. That momentary dip is still preferable to your teen not having any credit established in the first place.
If you add your teen as an authorized user, remember that you’re tying them to your credit. If you make all your payments on time, you’re helping both of you build positive credit. If you miss payments, you could hurt both of you.
Test things out with a prepaid card
While you want your kid to get started building good credit as early as possible, you also want to ease them into the credit space without doing damage. Consider testing the waters with a prepaid card for your teen. While prepaid cards cannot build your teen’s credit history, they’re a useful tool to establish financial responsibility. They’re a great option for younger teens learning that even when using a card, they still need to live within their means. The habits they practice with a prepaid card will help them be responsible credit card users down the line.
Graduate to a student card
Your kid needs to be at least 18 years old to open a credit card in their own name. For young adults under 21, they might also need a co-signer, guarantor, or joint applicant who is at least 21 and has the ability to make required minimum payments on the account.
For older teens, your kid can opt for a student credit card. This type of card is designed to help users start building credit, but with easier eligibility requirements compared to a standard credit card. A secured credit card is a similar option that doesn’t require a credit history in order to be approved.
Educate your kids about credit
With all the tips above, the most important thing you can do is educate your child about healthy financial habits—and model those habits yourself—so they’ll be able to build good credit on their own. Teach them the basics of boosting a low credit score, maintaining a high one, even building credit without a credit card. Remember, all things money-related might seem abstract to a teenager until they’re old enough to make their own decisions—and face their own consequences.
