As your child becomes an adult, a good credit score and an established credit history are crucial for financial independence. Once they turn 18, they are eligible for various forms of credit, such as credit cards, overdrafts, student loans and Buy Now Pay Later (BNPL) options. If you want your children to get the best start in life, helping them to build up a credit history is important.
The question is, at what age should you start building up a credit history and how do you do it? Discover everything you need to know in this useful guide.
Ways to help build my child’s credit history
If you want to help your children build a good credit history, here’s what you will need to do:
Get them used to handling money with a prepaid debit card
One of the main ways to build up a credit history is to apply for and use a credit card. As the repayments are made, it shows they can be trusted to have and manage credit. This builds up both credit history and credit score. Credit cards are available once your child has turned 18.
To ensure your child doesn’t get swept up in the excitement of having a line of credit when they turn 18, get them used to financial independence early. One way to do this is to give them their own debit card. By giving them a card, like the GoHenry prepaid debit card, they will gain experience with budgeting and actually using a card. By the time they can apply for a credit card, they will have a good idea of how to manage it.
Teach them good credit habits
Of course, one of the best ways to ensure your child builds up a good credit history is to teach them good credit habits. Make sure they know the dangers of not making repayments on time, and that they aren’t spending more than they can afford to pay back.
If you can teach your child good credit habits, it sets them up to use credit more responsibly by the time they turn 18.
Start them early
The sooner your child starts to build up a good credit history, the better. By starting early, they will have more time to establish a good credit score and make mistakes without long-term consequences. Starting early also means they are more likely to be eligible for better interest rates and terms when they apply for credit products later on — and as you'll be there to help, it's a great opportunity to pass on your knowledge to help them build the best score possible.
Add your child as an authorized user to your credit card
One of the best ways to help your child build up a credit history is to add them as an authorized user to your credit card. Adding your child to your credit card as an authorized user can help them to establish a credit history. As long as you make all of the repayments on time and keep the account in good standing, this will reflect positively on their credit report. So, as long as you have a good credit history and keep it up, this will help them to get started on the right foot.
However, it’s important to note that this only works if the card issuer reports information to the credit bureaus and the information is included in their credit report. Otherwise, being an authorized user may not affect their credit score at all.
Teach the differences between a debit card vs credit card
When your child turns 18, they will likely be inundated with offers for credit cards. It’s important that they understand the difference between a debit card and credit card before they make any decisions.
A debit card is linked to your bank account and can be used to withdraw cash or make purchases. A credit card, on the other hand, is a loan that needs to be repaid with interest. It’s important that your child understands the difference between the two before they make any decisions about using credit.
Help them understand delayed gratification
Delayed gratification is a key part of financial success. It’s the ability to resist the temptation of immediate gratification in favor of long-term gain. For example, buying a new car on credit may give you immediate gratification, but it’s not always the best financial decision. On the other hand, if you save up for the new car and wait until you can afford it without credit, you’ll be better off in the long run. If you can teach your child delayed gratification, it will serve them well as they make financial decisions as adults.
Teach the idea of needs vs wants
Another important lesson to teach your child is the difference between needs and wants. Needs are items that are essential for survival, like food and shelter. Wants are items that we would like to have but don’t necessarily need, like a new car or a games console. It’s important to teach your child that not every want is a need, and that they should be mindful of their spending. Encourage your children to think about whether they really need something before they make a purchase.
Why you should help your child build a credit history
Building up your child’s credit history early on can deliver great benefits. Most importantly, it helps to give your child full financial independence. If they have a good credit history when they reach adulthood, they will find it easier to:
- Get accepted for finance
- Rent or take out a mortgage
- Get cheaper interest rates on credit
These are the main reasons to start building up your child’s credit history. The question is, when can you start building it up?
At what age can children start building a credit history
Children can typically start to build up a credit score at the age of 18. However, you may have seen that adding a child to your credit card can help them to build up a good credit score from the age of 13. Unfortunately, this isn’t always true.
In order for your child’s credit activity to be reported to the credit bureaus and included in their credit report, you would need to have a credit card that reports authorized user activity. Unfortunately, not all issuers do this. So, while adding your child as an authorized user on your credit card can help them build good credit habits, it may not actually help them build their credit score. So, if the main goal is to help your child build their credit score, you may want to check this with your issuer first.
Don’t worry if your credit card provider doesn’t report activity to credit bureaus as there are still things that you can teach them that will help when the time comes to start building their history.
What to teach kids before building their credit history
If you want to prepare your child to help them build up a good credit history, there are a few things you’ll want to teach them before they turn 18. Here are some of the things you’ll want to touch upon:
- Money management
- Good saving habits
- Credit lessons
- The importance of tracking finances
Ideally, your child should have great financial literacy by the time they reach the age of 18. Teach them everything they need to know about credit reports and ratings, including what is included in the report and what isn’t.
Teaching them good savings habits will limit their reliance on credit in the future. It also teaches them to have a healthier relationship with money. Giving them credit lessons will also help as it introduces your child to how borrowing works and what they should avoid.
If you teach your children about credit and money management, they will know how to build up their credit history quickly.
How do you check your child's credit report?
Depending on your child's age, the process of checking their credit report may differ, but it's always a good idea to check at least once before they become an adult. In fact, the Federal Trade Commission even suggests that parents order a credit report for their children when they turn 16 years old. This can help you catch any fraudulent activity early on and prevent your child from having to deal with the consequences later in life.
If your child is under 13 years old
You will need to contact the credit bureaus by mail and provide certain identifying information to see if a credit report exists in their name. Each bureau has different requirements, so make sure to check with them before attempting to obtain your child's credit report.
If your child is over the age of 13
You can use AnnualCreditReport.com to check for their credit history. According to federal regulations, consumers are allowed one free credit report from each bureau (Equifax®, Experian® and TransUnion®) per year.
This will give you a good overview of your child's credit history and help you to spot any potential problems. With this information, you can help your child to build up a good credit history from an early age.
Start a lifetime of financial education with GoHenry
If you want to help your child build up a credit history, sign them up for a lifetime of financial education with Go Henry. Your child will get their own prepaid debit card and can make use of the in-app Money Missions, which is included in the membership fee.
Through our app, your child will learn about earning, spending, saving, budgeting, and investing.