Even though we typically do not receive a credit score until we are 18, we can establish a credit report. Teaching kids about credit and to learn good habits, can help set them up for adulthood with a positive credit history. Credit history is important for young adults who need to finance a car, or buy a home. A lot of young adults run into trouble, because they have not had the education on credit, and have a lack of credit history.
How to Build Your Kids' Credit
Unfortunately, your child cannot apply for a credit card in their name until they are 21 (or younger with a cosigner), they can still use them. You can add your kids as authorized users on your credit card. Some issuers do not report authorized users that are minors to credit bureaus, so it is important to read the policies of your creditor, if you want to help build a credit history for your kids.
If you have a creditor that will report a minority’s payment history, then your child can piggyback off of your payment history. Now, of course, that can be good OR bad. If you are a good borrower, paying your balances off in full, and are never late, then you can set your child up for a good score once they turn 18. If you are the type to carry balances, or have an occasional late payment, you could be doing damage to an authorized user’s credit score! Note that it is possible for anyone over the age of 13 to search for their credit history on annualcreditreport for free, yearly.
Talk to Your Kids About Credit, Money & Budgeting!
Now, as your kids reach the age to understand, start talking about the value of money, and how credit works. Touch base with them on this whenever you are making a big purchase that requires borrowing. Explain the process when you buy that new car, refinance your home, or even put something on a credit card at the store. Open a savings account for your child, and if they have an allowance, teach them to put some of that money in the account. Let them see that savings grow. Check out Greenlight , a spending account and savings app for kids. It allows you to pay your kids for chores and incentivizes kids to save.
Once they are old enough to land a part-time job, that might be a good time to add them as an authorized user on one of your own cards. Teach them that credit cards are to be treated like cash. You do not use them for things you cannot afford. Also place limits on authorized user cards with most creditors, just in case they are still learning the basics of budgeting. You can have your kids sit in on your budget review sessions, and help them start to build a system of their own for keeping track of purchasing. They can use something like Mint, or a spreadsheet.
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