Quick Guide: How To Build Your Child’s Credit

As adults, we’re aware of the importance of a healthy credit score. We know that those three little digits hold the key to enviable interest rates, approval for certain financial products and even low premiums on products like auto insurance.

But what about our kids? At what point should we start thinking about a child's credit, and when is the earliest we can begin helping them build a good score?

Of course, your children won’t need to actually use their credit until they are adults. That doesn’t mean you can’t help them start building a strong credit history and healthy habits through financial education.

At What Age Can You Start Building Credit?

Most of us are familiar with the ways that we can get good credit: Responsibly managing revolving balances, paying down installment loans and maintaining reasonable credit utilization ratios. But if our children don’t have mortgages or auto loans, and aren’t ready to open a credit card account of their own, is it really possible to start building their credit?

The answer is yes, though there are definitely some limits. We will talk about the minimum age you can start building credit and a few of the ways that you can start establishing an older child’s credit history in just a moment. But first, you should focus on what is perhaps the most important step of all: Teaching them how to responsibly manage their own credit and build a financial future from day one.

Key Lessons To Teach Your Kids In Basic Personal Finance

It's important to make talking with kids about basic personal finance matters a regular part of your everyday discussions. This type of personal finance education can help them as they make financial decisions that will be with them throughout the majority of their lives. Here are a few things to make sure that you talk about:

How To Budget

Learning how to budget is one of the most important pieces of personal finance know-how that anyone can have. While the word "budget" has somewhat of a negative connotation, a budget is simply a money management tool. Budgeting can help you not spend money on things that aren't important to you so that you still have money left for the things that are important to you. Staying within your budget will help keep you from overdrafting your bank account and harming your credit score.

How To Use A Debit Card Vs. A Credit Card

Another thing to talk about with your kids is how and when to use a debit card. Knowing the difference between a debit card and a credit card account can be key to making sure your children make appropriate financial decisions as they become adults. In the future, responsibly using your credit card and staying under your credit limit are great ways to build good credit.

Why They Should Save

Another thing you should regularly discuss is the importance of saving and having an emergency fund. One sure way to blow up your budget is by having an emergency expense that you haven't planned for. One suggestion might be helping your children set up a checking account for everyday expenses and then one or more savings accounts to work toward short- and medium-term savings goals. Even small amounts saved consistently over time can help build an emergency cushion and get them into the habit of saving.

How Paying On-Time Impacts Credit

Your credit score is made up of several different factors, and one of the biggest is your payment history. Having on-time payments is a good credit habit that can lead to a positive credit score while late payments harm your credit. Understanding the relationship between credit and on-time bill payments is a key component of financial literacy.

Why Credit Matters

You might think that your credit history doesn't matter as long as you have enough cash to cover all of your bills. But your credit score and overall credit history impact your life in a lot of ways, including what lenders you might have access to and your overall interest rates when applying for something like a home mortgage. So, it's important your child starts to build a relationship with a credit card company to help with building credit.

Options For Helping Your Child Build Credit

There are many ways that parents can help establish a child's credit while they are still young. Credit building and setting up your child with a good credit score will put them on the path to financial success.

Add Them As An Authorized User

One way that you can help build their credit is by adding them to one of your credit card accounts as an authorized user. Many financial institutions allow you to add minors as authorized users. The primary account cardholders are still responsible for all charges made on the account, but just adding your child as an authorized user (and then continuing to use your card responsibly) can help them build credit.

Encourage Saving For A Secured Credit Card

A secured credit card is a credit card where you put down an initial security deposit that serves as your credit limit. As you pay off your card, you increase the amount of available credit that you can access. Many card issuers offer secured credit cards which can make for a good first credit card. Another option might be a student credit card, which are typically targeted to college students and which may not require a significant existing credit history.

Co-Sign A Loan Or A Lease

Another option for parents to consider is co-signing student loans, other types of loans and leases to help their kids establish a credit history. This can help build credit for young adults, but it should be used cautiously. Remember that when you co-sign a lease for a car loan or other type of obligation, you are on the hook for the full balance of the loan or lease if your child stops making the payment. Before co-signing, make sure you talk with your child about your expectations and what they should do if they're having trouble making payments.

How To Check Your Child’s Credit Report

It’s important for parents to monitor their children’s credit report. You might think that this is unnecessary, especially if they are younger – after all, they shouldn’t have anything on their credit records to begin with. However, if you find that your child does have accounts reporting on their credit, you may be able to catch a problem before it grows.

It's fairly straightforward to check your child's report with major credit bureaus including Experian, TransUnion and Equifax. Freezing credit reports can be another option to help prevent ID thieves from opening accounts in a child’s name. Regularly monitoring your child's credit report can help stop identity theft before it happens.

FAQs: How To Establish Credit For A Child

Now that you understand how financial literacy and building credit for your child can work, we’ll answer your outstanding questions.

Can I start building my child’s credit?

Yes, it is possible to start building a child's credit before they become adults. One good way to help them establish credit is by adding them to one of your credit card accounts as an authorized user. This can help them take advantage of your good credit.

Can I add my child to my credit card to build their credit?

Yes, in many cases, adding your child to your credit card account can help them build their credit. Some issuers allow you to add kids as authorized users as young as 13. That can give you several years of good credit history before they even become adults.

How can I check my child’s credit report?

It's important to regularly monitor your child's credit report, just like you should monitor your own credit report. Because identity thieves know that many children do not regularly access their credit reports, they can sometimes be targets for criminals. You can also consider freezing your child's credit report until they turn 18.

How can a minor build credit fast?

Building credit is not something that you generally can do quickly – instead, building credit is something that happens over time. As you regularly pay your bills on time and show that you are responsible with the credit and accounts that you already have, your credit score will generally improve. One way to help minors build credit is by adding them as authorized users to your own credit accounts so they can take advantage of your stellar payment habits.

The Bottom Line: Start Building Credit For Your Kids Early

No matter how old your child is, there are steps you can take to ensure the security of their credit, instill lifelong financial lessons, and even help grow their credit history. Be sure to check your child’s credit report and monitor it regularly for changes. Early on, teach your child the importance of good credit and what that requires. Then, when your child is a teenager, consider adding them as an authorized user on your own account(s). Whether they use the card or not, it will give them a leg up on establishing their credit.

Helping your kids build credit doesn’t have to be difficult. Download the Rocket Money℠ app and see how it provides a global view of your family’s finances.