How to Help Your Child Build Credit

Teaching your children how to responsibly manage their finances is an important step in preparing them for the adult world. While their financial education should begin with the basics of budgeting and saving, they will eventually need help navigating more complex topics – such as how to establish and grow their own credit.

Though it can feel overwhelming to help your child establish good credit, it doesn’t have to be complicated or risky. There are a few steps you can take to help your child safely build credit while equipping them with the knowledge and skills that they need in order to maintain a healthy score.

Signs Your Child is Ready to Build Credit

Credit cards come with a lot of responsibility, which is why it’s important to make sure your child is ready before helping them open any credit-building accounts. That said, there’s no specific age or milestone that determines how prepared they are. Instead, try looking for these key signs that your child is ready to begin building credit:

• They know and practice the basics of good money management.
• They demonstrate an initiative to budget, save, and spend wisely.
• They can clearly and accurately explain how a credit card works.
• They demonstrate self-control and an ability to avoid impulse spending.
• They show an interest in establishing and building their own credit.

Ways to Help Your Child Build Credit

Just because your child is ready to begin building credit doesn’t mean that they need to jump right into the deep end and open up multiple credit cards in their name. Instead, it’s best to ease your child into credit-building accounts while monitoring their activity to ensure that they are managing their money responsibly. Here are some great methods for helping your child safely establish and grow a healthy credit score:

• Educate them on the basics of credit. The very first step you should take before helping your child open up any accounts is to educate them on how credit works. Explain why a credit score is important, how it is calculated, and what they need to do to keep their score up. Discuss why it is important to make payments on time, and why they should still stick to a reasonable budget when using credit cards.
• Make them an authorized user on your account. A great way to help your child build credit in a lower-risk environment is to make them authorized users on your credit card. Not only will this give them the opportunity to hold onto a card of their own and practice responsible credit management, but it will also allow you to keep a closer eye on their credit spending habits.
• Help them open up a secured credit card. Secured credit cards are a great option for individuals who want to build their credit with a lower risk of accruing debt. These cards are partially backed by your own money, but they still allow you to build credit and earn benefits just like a regular credit card. Since secured credit cards require a deposit up-front, they also have a higher approval rate, which makes them more obtainable for somebody with no credit history.
• Keep an eye on their statements or credit report. As your child is learning to responsibly use a credit card, it may be useful to watch their habits – at least until they get the hang of things. Take the time to look over their statements and/or credit report with them. Not only does this give you the opportunity to teach them important skills such as interpreting their score or looking for mistakes, but it also lets you see how they are managing their accounts.