How to help your child establish and build credit

Everyone wants to set up their kids for success. But when it comes to finances, it can be hard to know where to start. 

One way to support them is by helping them establish a healthy relationship with credit. Having a good credit history can come in handy for everything from getting their first credit card to taking out a mortgage. Find out a few ways you may be able to help a family member establish and build credit.

What you’ll learn:

• Adding your child as an authorized user on your credit card account may be one way to help them establish and build credit, as long as you both use the account responsibly. 

• Capital One reports authorized users to the credit bureaus. But if your issuer doesn’t do that or the card isn’t used responsibly, being an authorized user won’t help them build credit.

• Once your child turns 21—or 18 in some cases—they may have access to more options for building credit, including responsible use of secured cards, student cards, credit-builder loans and retail credit cards. 

• The Consumer Financial Protection Bureau (CFPB) suggests checking your child’s credit reports to spot errors and signs of identity theft.

Using credit responsibly, not just having access to a credit account, is what can help your child build credit. With that in mind, here are some options.

If you think your child is ready, you could consider adding them to your credit card account as an authorized user. That gives them their own card to make purchases.  And it’s a great way to teach them how to manage money responsibly. Even if your child never uses the card , they still may be able to build credit if you use your card responsibly. 

It’s important to note that credit card issuers have their own policies for authorized users. It’s also worth looking into things like minimum age requirements and credit reporting policies before making any decisions. 

That’s because authorized users can only build credit if the issuer reports them to the credit bureaus and the credit bureaus put that information in their reports. Capital One reports to the credit bureaus. But there’s no guarantee that other issuers will.

Once your child turns 18, they’re not a minor anymore. But there are still laws about issuing them credit cards. “In most cases, you’re required to be at least 21 to get a credit card,” the CFPB says. That’s unless the person can prove they have sufficient income to make monthly payments or they have a co-signer who’s over 21.

Many major credit card issuers don’t allow co-signers. But your child’s 18th birthday might offer an opportunity to talk seriously about what it means to have their own card in the future and how a secured card, student card or other options might be the next step.

According to the Organization for Economic Co-operation and Development, children who have hands-on experience with managing money often understand it better. And the Federal Trade Commission (FTC) says kids who understand money tend to have better credit scores as adults. Here are a couple of ways you can help lay the groundwork:

Even if you’re pretty sure your child has no credit history, the CFPB suggests you check. That way, you can be more confident about your child starting out with a clean credit report. The FTC suggests closely checking kids’ credit reports beginning when they are 16. But you can check earlier if you’d like.  

Checking your child’s reports early can give you time to correct errors and increase their chances of approval for things like loans and credit cards. Plus, it can help when they apply for jobs because some companies check credit as part of the hiring process.

You can give your child hands-on experience managing money by opening a savings account in both your names. You could use the account to help them set savings goals and learn to make deposits. Young adults might benefit from the extra independence and experience a teen checking account could offer. Plus, some teen accounts give parents access and oversight.

In theory, you can start building credit at any age. But to build credit, you need access to credit. And the options can be limited for someone under 18.

It’s possible to start building credit early as an authorized user on a parent’s credit card account. Remember, this depends on the policies of your credit card issuer and the credit bureaus. Capital One reports authorized users to the credit bureaus. Others may not. 

But there’s no need to feel like anyone’s falling behind. The CFPB says most people don’t have a credit record before they turn 18. Yet more than 90% of people have established one by their mid-to-late 20s.

As the CFPB says, no one is born with a credit record. Credit records aren’t established at any particular age, either. But there are a few ways that a minor could have a credit profile:

• They’re an authorized user on the credit card account of a trusted family member or friend and the credit card issuer reports the user’s card activity to the credit bureaus.

• They’re a victim of identity theft.

• A credit bureau confused them with someone who has a similar name.

So while the credit bureaus typically don’t generate credit reports for minors, it’s still possible that your child could have one. And remember, the CFPB has guidelines on how to contact the credit bureaus to check.

A minor may be able to build credit by becoming an authorized user on the credit card account of a trusted family member or friend. But to build good credit, both the authorized user and primary cardholder need to use the card responsibly—and the activity has to be reported to the credit bureaus.

Once your child has established credit, they can use credit-monitoring tools such as CreditWise from Capital One to help them keep an eye on things. CreditWise lets you monitor your VantageScore 3.0 credit score and get your free TransUnion credit report. Using it won’t hurt your credit scores and it’s free for everyone, whether you’re a Capital One cardholder or not. Keep in mind that you have to be at least 18 to use CreditWise.

As a parent, there are lots of things you can do to help your child establish and build credit. Adding them as an authorized user on your credit card account is one. Keep in mind that’s as long as you both use the account responsibly and your card issuer reports the card activity of authorized users to the credit bureaus.
Once your child turns 18 or 21, they may have access to more options. These include secured cards, student cards, credit-builder loans and retail credit cards. Teaching them about responsible credit use could help them get off to a great start when the time comes.

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