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Imagine having the chance to lay the groundwork for excellent credit during your younger years. While you can’t rewrite your own financial past, you can ensure your children benefit from an early start. Even if they’re too young for a credit card, there are actionable steps to begin shaping their credit history today.
A robust credit history will pave the way for your child to secure their first apartment, access favorable interest rates, and save significantly over their lifetime. Discover how you can assist your teen in building a strong credit profile for their future.
Verify whether a credit report already exists for them
Start by ensuring your child isn’t affected by errors or identity theft. Even if you believe your teen has no credit history, it’s wise to reach out to a credit bureau and verify their credit status. Taking this precaution is always a smart move.
Include them as an authorized user on your credit card
Before giving your teen their own credit card, consider adding them as an authorized user to one of your long-standing credit accounts. This can help them build credit, provided your card issuer reports activity to credit bureaus and this data is reflected in credit reports. If this information isn’t included in their credit report, it may not impact their credit score.
Once your teen is eligible for their own credit card, you can remove them as an authorized user from your account. Don’t worry if their credit score experiences a minor drop—this is temporary and will recover quickly as they use their new card. A slight dip is far better than having no credit history at all.
When adding your teen as an authorized user, keep in mind that their credit is linked to yours. Timely payments will benefit both of you, while missed payments could negatively impact both your credit scores.
Experiment with a prepaid card
While it’s important to help your child build credit early, it’s equally crucial to introduce them to credit responsibly. A prepaid card can serve as a safe starting point. Although prepaid cards don’t contribute to credit history, they’re excellent for teaching financial discipline. They’re ideal for younger teens learning to manage their spending and understand the importance of staying within their budget. The skills they develop with a prepaid card will prepare them for responsible credit card use in the future.
Transition to a student credit card
To open a credit card independently, your child must be at least 18 years old. For those under 21, they may require a co-signer, guarantor, or joint applicant who is over 21 and capable of meeting the account’s minimum payment obligations.
For older teens, a student credit card is a viable option. These cards are tailored to help users establish credit, with more lenient eligibility criteria than traditional credit cards. Another alternative is a secured credit card, which doesn’t require an existing credit history for approval.
Teach your children about credit management
While the above strategies are helpful, the most crucial step is educating your child about sound financial practices—and demonstrating these habits yourself. Equip them with knowledge on improving a low credit score, sustaining a high credit score, and even establishing credit without relying on a credit card. Keep in mind, financial concepts may seem vague to teens until they’re responsible for their own choices—and the outcomes that follow.
