By Megan Doyle | American Express Credit Intel Freelance Contributor
4 Min Read | August 4, 2021 in Credit Score
Many parents would like to help their children establish good credit, but kids can’t get their own credit cards until they’re at least 18 and have a source of income.
Still, there are various ways to help your child build good credit for the long run, from adding them as an authorized user to instilling good financial habits and a solid credit education.
Long before I ever imagined owning a credit card, my dad instilled in me the importance of establishing and maintaining a good credit score – keen advice I still consider today. When I got my first credit card at 22, I already knew the basics for building credit: only use the card for what I could afford and pay my balance in full and on time. A healthy credit score has since helped me in a number of ways, such as getting loans, renting apartments, and being approved for more rewarding credit cards later.
But your child doesn’t have to wait until early adulthood to build credit. These tips can help them start establishing credit so they have a financial leg up by the time they’re ready to make the leap into adulthood.
One of the most important ways to help ensure your child can establish a good credit history is to educate them about the importance of credit and how it works. It can help them understand how building credit history is a slow and steady process that’s ultimately rewarding. For example, they may be years away from even thinking about buying a house, but thinking about how to establish a healthy credit history now can help them secure a mortgage in the future.
For your child to get a credit card in their name, they must be at least 18 years old and have their own steady source of income. However, you can probably add them as an additional Card Member (aka authorized user) to your credit card account. Some cards require authorized users be of a certain age, such as 13 or older, but others have no age minimum – meaning kids under 18 can start building their credit from scratch.
Take note: If you add your child as an authorized user, you take the burden of responsibility for all charges made on their credit card. It may be wise to outline your expectations and restrictions if you think your kid may feel tempted to spend freely. If they run up major charges that you have to pay back, both of your credit scores could be put at risk.
If your kid is eligible for a credit card, it can help to set some guidelines to build healthy credit card habits early on. One way to do that is to have your child designate their new credit card for basic, recurring purchases they’d be making anyway. This way, you both know they can afford to pay their credit card bill on time and in full, and they can start establishing their credit history in a slow and steady fashion.
Credit cards aren’t the only way to build credit. Though many on-time bill payments aren’t reported to the major credit bureaus, missed or late payments can dock your score. Teaching your child the importance of paying bills on time when they don’t have too many bills on their plate can help them get accustomed to making regular payments – a big component of “adulting.” Unlike, say, cell phone bills, loans are a major factor in your credit history. Car loans and student loans can help your child establish credit as long as they pay their monthly statements on time.
If your child is ready to take on the responsibility of a credit card but their credit history is still too thin to be approved, another alternative is to apply for a credit card designed for those with minimal credit history. Student credit cards, for example, are designed for young adults with little to no credit. They typically have lower credit limits and no annual fees to help kids start establishing credit without too much risk of overspending. Secured credit cards are another option. Backed by a cash deposit that’s used as collateral, secured credit cards can be a useful way for kids to build credit when their financial history is too limited to be approved for a traditional credit card.
Helping your kids establish credit can be an effective way for them to jump-start their financial lives when they’re ready to leave the nest and start “adulting.” While actually owning and using a credit card is key to building credit, parents can start the process early by adding their children as authorized users and teaching them about the importance of good credit.