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The best way to help build your child's credit is to show them the ropes at an early age. Whether they're in elementary school or getting ready to leave the nest, learning these skills before adulthood can help them establish strong credit and shore up their financial future when they're ready. There are some simple steps you can take to support them in that goal. Parents can begin building their child's credit by following these five tips.
1. Start Early
Minor children typically don't have credit reports and credit scores. (If they do, that's a red flag for potential identity fraud.) But you don't have to wait for them to come of age to start teaching them about money. The sooner they become familiar with financial basics, the better prepared they'll be to manage their own money. Below are some jumping-off points:
- Offer them age-appropriate ways to earn an allowance.
- Teach them how to make a budget.
- Open a kids checking account on their behalf.
- Help them track their spending.
- Encourage them to get in the habit of saving.
You can also check with the three major credit bureaus (Experian, TransUnion and Equifax) to see if your child has a credit report. If they do—and you discover fraudulent information within it—you have the right to dispute it and also have the right to freeze their credit to prevent further damage.
2. Teach Your Kids How Credit Works
The goal is for your child to understand how to manage their credit by the time they're a young adult. In that spirit, here are some core credit lessons you can teach them at each stage of their childhood:
Pre-K
- Introduce basic concepts about money, such as how to identify coins.
- Explain the concept of savings by giving them a piggy bank.
- Teach the value of money by involving them in your purchases.
Elementary School
- Go over how a debit card works.
- Explain what debt is and how credit is different from debit.
- Play personal finance games together that reinforce different financial skills.
Middle School
- Explain what a credit score is and why it matters.
- Teach them about the factors that influence your credit score.
- Get your child a prepaid debit card.
High School
- Show them how a credit card works.
- Explain how to use a credit card responsibly.
- If there's a big-ticket item they want to buy, offer to loan them the money—and charge interest. If they don't have a way to pay you back, encourage them to get a part-time job or increase their household chores for more allowance so they can save for the purchase themselves instead of being in your debt.
3. Demonstrate How to Manage Money
If you're wondering how to build a child's credit, showing them how you manage your own money could be a great starting point. Whether you use a budgeting app or a more formal budgeting system, invite your child into the process. You can show them how it works and the basics around:
- Managing your income and expenses
- Tracking your spending
- Saving for financial goals
- Paying taxes
This can take money management out of the abstract and make it more relevant to their lives—and it doesn't have to be complicated. It could be as simple as having a weekly family money chat. In terms of credit, you can model paying your bills on time and living within your means.
4. Add Your Child as an Authorized User on Your Credit Card
In most cases, you have to be 18 to open your own credit card. One workaround is to add your child as an authorized user on one of your accounts. They may need to be at least 13 years old, though some credit card issuers have no minimum age requirement. As an authorized user, they'll receive a credit card in their name that's linked to your account. This will allow them to make purchases, but they aren't responsible for repayment.
Being an authorized user will also establish a credit report for your child (though some card issuers won't report authorized-user accounts until age 18). Paying your bill on time and keeping your credit utilization ratio low can help build your child's credit. You can also teach good credit habits by having them reimburse you for all their charges.
5. Become a Cosigner
When your child turns 18, they may find it difficult to qualify for new credit if they have a thin credit file. Bringing on a cosigner can help them get approved.
By cosigning, you're agreeing to take equal responsibility for the debt—and assume liability for the balance if your child fails to pay. That could hurt your credit if your child pays their bill late or defaults altogether, but making good on their payments should help strengthen their credit (and improve your score as well). You may choose to cosign on a:
- Credit card
- Private student loan
- Personal loan
- Auto loan
Free credit monitoring with Experian is a simple way for you and your child to keep up with your credit files. Notifications are sent whenever new credit information appears—which can be a key way to spot potential identity fraud.
Frequently Asked Questions
It's never too early to teach your kids about credit. Your minor child shouldn't have a credit report unless you've added them as an authorized user on one of your accounts. Even if you haven't taken this step, you can still model responsible money management. That can help prepare them to effectively manage their own credit when the time comes. As they get older, you may choose to cosign a loan or credit card to help them establish their credit.
There are two main credit scoring models:
- FICO Scores, which are used by most lenders, range from 300 to 850.
- VantageScore® is another model that also uses the 300 to 850 range.
A good credit score is generally considered to be one above 700. A strong credit score makes you a more attractive borrower and can improve your chances of getting approved for new credit. It can also help you secure better interest rates and terms.
You can check with the main credit reporting agencies to see if your minor child has a credit report. If they do, and it contains fraudulent information, you have the right to freeze their credit, report the identity theft and dispute the errors to have them removed. You can also take the following steps to protect their credit.
- Keep their Social Security number safe.
- Limit the amount of personal information you and your child share online.
- Keep sensitive documents in a safe place within your home.
- Be on the lookout for bills or credit card offers in your child's name. That's a warning sign that their identity may have been stolen.
The Bottom Line
The best way to build your child's credit is to start teaching them credit basics early on. You can add them as an authorized user on your credit card when they're ready and, eventually, you may choose to cosign one of their loans or credit cards.
Learn More About Kids and Credit
- Should You Freeze Your Child’s Credit File?
Child identity theft is a growing problem. Freezing your child’s credit file could help. Learn how and why you should consider it. - What’s the Best Way to Build Credit for Teenagers?
Establishing credit and learning to use it wisely when you are a teenager can make the transition to adulthood much easier. As a parent, there are a few things... - How to Teach Your Kids to Use a Credit Card
Not every kid is ready for a credit card, but parents should start teaching them the basics as young as possible. Here’s how to get started. - When Should My Child Get a Credit Card?
A credit card may seem out of place in the hands of a child, but it could be a great financial and educational tool for your family.