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In this article:
- 1. Educate Your Teen on Credit Basics
- 2. Open a Checking Account
- 3. Teach Your Teen the Difference Between Debit and Credit
- 4. Add Your Teen as an Authorized User to Your Credit Card
- 5. Teach Your Teen How to Monitor Their Credit History
- 6. Consider a Secured Card
- 7. Have More Payments Reported
- 8. Be a Good Role Model
People with good credit are more likely to be approved for a loan, qualify for lower interest rates and pay less for home and auto insurance than those with fair or poor credit. But establishing a solid credit history doesn't happen overnight. It requires taking positive action consistently, over time. The good news is there are things you can do now to help your teen build a strong credit profile that will help set them up for future success.
1. Educate Your Teen on Credit Basics
Kids aren't born knowing how credit works, and it's a mistake to assume they'll figure it out as they get older. Just as you taught them how to tie their shoes, it's up to you to teach them how credit works, how to build good credit and why it matters. If you're talking to your kids about credit for the first time, stick with the basics.
Teach them what a credit score is and how lenders and other businesses may use it to make decisions about credit applications, determine interest rates and more. Connect the dots for your child about the real-life consequences good or bad credit can have on their ability to qualify for a loan, get a low interest rate, rent an apartment or pay lower utility deposits.
Review the habits that can positively affect their credit history, such as paying all bills on time, keeping credit utilization low and applying for credit sparingly. Explain to them how paying late, accumulating debt and applying for too many accounts in a short amount of time can lower their credit score.
Providing your teen with this information can help them avoid mistakes that can negatively affect their finances in the long term.
2. Open a Checking Account
Most banks and credit unions offer checking accounts for minors or students, but you'll need to be a joint account holder if your teen is under 18. Opening a checking account can help your teen get used to making deposits and withdrawals and balancing their account. When your child is ready, give them access to a debit card that's linked to their account. Although debit card purchases aren't included in credit scores, using one can help prepare them for their first credit card because they will need to track their spending and account balance to ensure they have enough money to cover a purchase.
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3. Teach Your Teen the Difference Between Debit and Credit
Before your teen gets their first credit card, they need to understand the difference between debit and credit. Because you can typically only spend what you have in your checking account when you use a debit card, debit cards make it difficult for teens to overspend unless they opt into their bank or credit union's overdraft protection program. If your child has overdraft protection, their financial institution will cover a purchase even if they don't have enough money in their account to pay for it.
But banks and credit unions charge a fee for this service, and fees can add up quickly if your teen attempts to make multiple purchases without realizing their account balance is low. To avoid this scenario, consider skipping the overdraft protection while they get used to using a debit card. Without it, they won't be able to spend more than they have in their account, which acts as a guardrail for spending.
With a credit card, you can make purchases up to the card's credit limit, no matter how much money you have on hand. Teach your kids that using a credit card is like taking out a high-interest loan. Encourage them not to charge more than they can repay at the end of each credit card cycle. Tell them that if they don't pay the bill in full each month, the remaining balance earns interest at high rates—the average interest rate on credit cards that earned interest was 22.75% in November 2023, according to the Federal Reserve. Overspending with a credit card can result in debt that's difficult to repay.
4. Add Your Teen as an Authorized User to Your Credit Card
Many credit card companies allow cardholders to add an authorized user to their account. An authorized user is a person who can use the card to make purchases but isn't responsible for making payments. Adding your teen as an authorized user can help them establish a solid credit history—if you pay the bill on time and don't use too much of your available credit. However, you could hurt your child's credit history if you have a high credit utilization rate by letting the balance get too close to the card's limit.
Keep in mind, not all credit card companies report authorized user account activity to the credit bureaus. Before adding your teen to your account, find out what the company's policy is. Adding them as an authorized user won't help their credit if the issuer doesn't report the payment information.
5. Teach Your Teen How to Monitor Their Credit History
Everyone needs to monitor their credit history to ensure the information in their file is accurate. Getting your child to regularly check their credit reports from the three consumer credit bureaus (Experian, TransUnion and Equifax) can help them quickly identify and resolve errors. Let them know they can check their free Experian credit report anytime or get free weekly copies from all three bureaus at AnnualCreditReport.com.
Have your teen carefully review their report for inaccuracies, such as payment history mistakes, accounts they don't recognize, incorrect account opening and closing dates, duplicate accounts and more. If your teen finds an error, they have the right to dispute items on their credit report with the credit bureau and the company that reported it.
6. Consider a Secured Card
A secured credit card is like an unsecured card with training wheels. When your teen is ready to move from debit to credit, it can be a good place to start. It's easier to qualify for a secured card than an unsecured card, and it allows teens to build credit while reducing the risk of overspending and accumulating debt. Your child must be at least 18 years old to open a credit card, and if they're under 21, they must show proof of income.
If your teen is approved for a secured card, they must provide a deposit to the card issuer before using it. The deposit is often equal to the card's credit limit and acts as collateral for the card. Your teen can use the card to make purchases just as they would with an unsecured credit card. They are responsible for paying the bill each month, and if they default and stop paying on the account, the credit card company can use the money in the account to cover what your child owes.
Credit card issuers generally report secured card payments to the credit bureaus. A history of on-time payments can help your child establish a solid credit profile, but late and missed payments will hurt their credit score.
7. Have More Payments Reported
If you think lenders are the only companies that can report information to the credit bureaus, think again. Features like Experian Boost®ø report other types of payments, such as utilities, cellphone, rent and insurance. If your child rents an apartment, consider having them sign up for a rent reporting service to report their monthly rental payments to one or more of the credit bureaus. Reporting additional payments may help your teen build credit faster.
8. Be a Good Role Model
All kids—even teens—learn what to do by watching what their parents do. Modeling responsible money management and credit usage can help your teen establish good habits. Show your teen how you pay your bills on time and in full each month, live within your means, stay out of debt, and check your credit reports regularly for errors. If your teen sees you doing these things, they're more likely to do them too.
The Bottom Line
Building a solid credit history isn't difficult, but it takes consistent, positive action. Taking the time to teach your child credit basics and money management skills now will give them the foundation they need to use credit responsibly as young adults and throughout their lives.
If your child is 18 and doesn't yet have a credit report, they can begin their credit journey with Experian Go™. Experian Go helps jump-start their credit profile and help them begin building credit for free.