Parents play a crucial role in kids’ money milestones, from starting a piggy bank to giving an allowance. Even if you know maintaining good credit is an important part of strong financial health, you might be unsure how to help your child get started. Luckily, you have several ways to set them up with good credit long before they’ll need it.
Importance of a good credit score
If you’re able to get a head start on establishing your child’s credit history, they may be able to reap these benefits later on:
Lower interest rates on loans and credit cards
Larger selection of credit card options, including rewards options
Increased chance of rental applications being approved once they’re ready to move out
Higher credit limits
Higher likelihood of qualifying for student loan refinancing options
Read more: Want to start your child with a debit card? Learn about interest checking accounts.
How to start your child off with strong credit
No matter your child’s current age, you can kick off their credit journey on the right foot.
1. Add your child as an authorized user to your credit card
If you use credit cards, making your child an authorized user can be a first step toward building their credit. That’s because the length of credit history impacts a person’s credit score. The sooner you add a child to your credit card, the longer their history will be.
By adding your child as an authorized user, your account will be added to their credit report and they’ll be issued their own credit card. Unless you want them to use the card immediately, put it in a safe place. Each bank has authorized user minimum age requirements, so check with yours for specifics.
Keep in mind: You’re tying your child's credit to your spending and payment habits. If you struggle with maintaining good credit card practices, don’t add them to new accounts or ones where you may be holding high balances.
2. Teach your child about building credit
Once they’re old enough, you can start introducing the concept of credit to your child — or, if they’re still young, consider allowing them to “borrow” against their future allowance.
Once you think they’re ready, you can introduce a debit card before jumping to a credit card. Depending on their age, you can either authorize your child as a user on your checking account or open a new account in their name to receive a debit card.
Monitor their spending behaviors for a few months to see how they’re handling the responsibility, especially in relation to any income they might be earning. If you start to see poor spending habits forming, talk to your child about how things like high balances and late payments will affect their credit once they have access to their own credit card.
By taking steps to establish strong credit for your child, you can help their journey to financial independence.
3. Allow your child to start using credit
Remember the credit card your child was issued when you named them an authorized user on your account? Once your child is at an age where they can start using a credit card responsibly, give it to them and explain how it’s connected to your account. It’s up to you to determine when your child is ready for their own credit card, but allowing them access to your own account is a great way to ease them into understanding their own credit habits.
4. Research student credit cards
If your child is over age 18 and enrolled in college, they may qualify for a student credit card. They can have higher interest rates and lower credit limits than traditional credit cards but can be easier to qualify for if your kid doesn't have an existing credit history.
5. Consider a secured credit card
Secured credit cards are another way to establish credit, especially if your child is older or isn’t eligible for a student credit card. With a secured card, the account holder makes a cash deposit to act as collateral — showing the bank lender they have the money. Secured cards also can be helpful if your child needs to repair their credit.
Start keeping score
By taking steps to establish strong credit for your child, you can help their journey to financial independence and ease some of their big life transitions.
