You can begin building your child’s credit whenever you want to by making him or her an authorized user on your credit card. Usually, you have to be at least 18 and have an income to take on a credit card or loan, which are the conventional ways that people start building credit. Adding a child as an authorized user on your credit card can help those who have limited or no credit history start building a credit file. … So if you are a responsible credit card user with a strong payment history and low credit utilization rate that will help your child’s credit score. Carrying a high balance on your credit cards has a negative impact on scores because it increases your credit utilization ratio. … For top credit scores, keep your utilization in the single digits.
1. Start early
If your child is already a young adult who is ready to start building credit with a credit card, there are a few simple tricks you can teach them about maintaining excellent credit: always pay your bill on time, spend below your means and don’t open more accounts than you can comfortably manage. But the best behaviours actually result from an early education, not only knowing how the credit game works. In Gardner’s book, one of the characters, appropriately named Spender Bear, runs into trouble when he buys only what he wants. He must work with the other bears to create a budget that includes saving, investing and donating money as well.
2. Teach the difference between a debit card and a credit card
When your child is young, they will observe you swiping your card at the checkout, and they will easily make the connection that a card is a lot like cash. But while a debit card is cash in essence, a credit card is borrowed money. So well before your child starts using their own debit card, they should understand the difference. “Having a debit card does not help build credit,” Sheehan explains, “but the habits formed from responsible debit card usage translates to more complex topics like credit cards and borrowing.”
3. Incentivize saving
There is also a parent-paid interest program that rewards kids for putting their money in savings by letting parents send interest disbursements from their checking accounts. But the parents who use the app’s parent-paid interest feature see their kids saving more, and the kids are currently earning an average of 18% APY from their parents’ “bank.
4. Help them save early for a secured credit card
“They understand that if they fail to pay their credit card bill, their savings account is going to be taken away and they are going to get a ding in their credit score,” Griffin explains. But if they do it right, they can continue to grow their savings while also building good credit. It stands out because Capital One will review cardholders’ accounts periodically to give qualified borrowers access to more credit and to eventually upgrade them to a unsecured card.
5. Co-sign a loan or a lease
“Helping a 16- or 17-year-old get a used car loan can be a good way to build credit,” Griffin tells CNBC Select. While this strategy may come with some risks to your personal credit score, if you believe your teen is trustworthy enough to make the payments on a car loan, it can be a great way for them to establish credit without opening a credit card. They might also need a little help getting approved for their first apartment lease, and you can be a co-signer to get them started. In some cases, they can ask their landlord or property manager to report their rent payments with Experian RentBureau to help raise their credit score.
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