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How to Build Your Child's Credit

Posted On: July 25th, 2019

            As adults, we all know how important credit is. A high credit score usually means lower interest rates on loans. A solid credit rating also makes it easier to get those loans because banks and credit unions are more willing to lend to those who have demonstrated timeliness in paying off the loan. Getting your kids to understand the importance of credit can be a challenge, but it’s a worthwhile endeavor as helping them build their credit from a young age will give them real-world experience while still living at home.

            To get started, begin a financial discussion with your kids. There is no right age for this discussion. You know your kid best, so start the conversation when you think they are ready as they will need to begin getting familiar with the concepts of finances in general. Depending on the age, Biz Kidz is a fantastic resource to help kids understand complex financial topics. This group offers lesson plans, a TV show on PBS, and games to help make learning fun. Don’t be afraid to talk about the pitfalls of credit such as overspending and irresponsible credit card use. It is better to have the uncomfortable conversation rather than have them find out first hand.

            Second, open a savings and checking account for them. While it won’t establish credit, it will give them practice on banking and encourage money management, especially if they have a debit card. Responsible debit card use is an important pre-cursor to having a credit card.

            Third, add them to an existing credit card. You can add your kids to an existing card you already have open as an authorized signer. They would have the ability to make purchases, but ultimately you would still be responsible for paying the bill. Once they get a job they may be eligible for their own credit card. Parents can co-sign for their kids to help get them approved. Just know a co-signer is still responsible for the debt if the primary signer doesn’t pay.

            By helping your child learn basic finance concepts and start to build credit, you are setting them up for success. It will be easier for them to get their first car loan, home loan and even student loans. They will have learned the knowledge and skills to be financially independent.