How to Build Credit for Your Kids

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By Katharine Ann
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Credit cards

In today's economy, building and maintaining good credit is important. With the new laws regulating credit cards, it may be harder for younger people with no credit history to start building credit of their own. What can you do as a parent to help out?

Difficulty: Easy

Instructions

Step 1

It's never to early to start teaching good credit habits!

Many parents want their children to start life with good credit. For younger persons with no credit, establishing credit, and thus building an excellent credit rating can often be a challenge. Here are a few tips and tricks to remember:
Step 2

Please check your credit score before authorizing your children.

Authorized Users

In the past, parents could sign their children onto credit accounts as an "authorized user" to help build their credit. Scoring models, like VantageScore do not take authorized users into account, but several models do, like FICO 08. An authorized user in considered to be someone with a relationship to the primary accountholder like parents, spouses, and children.

If you are worried about your children abusing your credit card, then just sign them on as an authorized user and don't give them access to the card. In this way, you can build credit for your children without them ever knowing that it is happening.
Step 3

Secured credit cards can be an excellent option, especially if your child has a job!

Secured Credit Cards

Secured credit cards are a way to begin building credit. The credit limit you have is based on how much money you have in the bank. This is a good way for young people with jobs to start building credit. If you have $500 in the bank, you can only charge $500 to the card. This way, your child can never dig a hole they can't get themselves out of.
Step 4

Co-signing auto and student loans can help build credit

Co-Signing

This may not be a good suggestion for everybody, but it is out there. If you have a child in college who can't get an auto loans or student loans on their own, you always have the option of co-signing loans for them. This will help your child build credit, but you must make sure that all payments are made ON TIME! Otherwise, it could be harmful to the credit scores of everybody involved.
Step 5

Retail credit can be good - but beware!

Retail Credit

One option for young people to build credit who cannot get a credit card is to apply for retail cards at places where they shop. These work like credit cards, but only work at a specific business or chain. Again, make all payments on time! Careful use of retail cards can build credit to the point where a major credit card is possible, but only if you are wise with your money and make all payments ON TIME.
Step 6

Teach Your Children Good Habits

One of the most important things you can do as a parent is to model good credit habits for your children. Talk with your children about how credit scores work and why a good one is important. Discuss the pitfalls of credit cards and make a list of good skills for money management. Education is one of the most successful tools your child can have.