5 Ways to Help Your Child Establish Credit
4 Min Read | Last updated: July 5, 2024
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn how to help establish credit for your child, from financial education to adding your child to your credit card as an authorized user.
At-A-Glance
- Many parents would like to help their children establish good credit, but children can’t get their own credit cards until they’re at least 18 and have a source of income.
- Still, there are various ways to help your child build good credit for the long run, from adding them as an authorized user to instilling good financial habits and a solid credit education.
In today’s fast-paced financial world, teaching your children the basics for building credit is like handing them a key to future opportunities. Having a good credit score may make it easier for them to qualify for loans, rent the apartment they want, and even become eligible for more rewarding credit cards later.
And the good news is your child doesn’t have to wait until early adulthood to build credit. These tips can help them start establishing credit so they have a financial leg up by the time they’re ready to make the leap into adulthood.
1. Teach Your Child About Credit
One of the most important ways to help ensure your child can establish a good credit history is to educate them about the importance of credit and how a credit score is calculated.
Once your child understands how credit works, they’ll see how building credit history is a slow and steady process that’s ultimately rewarding. For example, they may be years away from even thinking about buying a house, but they’ll know that establishing a healthy credit history now can help them secure a mortgage in the future.
2. Add Your Child to Your Credit Card Account
For your child to get a credit card in their name, they must be at least 18 years old and have their own steady source of income. However, you can probably add them as an additional card member (aka authorized user) to your credit card account. Some cards require authorized users be of a certain age, such as 13 or older, but others have no age minimum, which could allow them start building their credit from scratch early on. Be sure to check your card issuer’s requirements, as they can vary.1
3. Limit Your Child’s Credit Card to Basic Recurring Expenses
If your child is eligible for a credit card, it can help to set some guidelines to build healthy credit card habits early on. One way to do that is to have your child designate their new credit card for basic, recurring purchases they’d be making anyway, like gas or school lunches. This way, you both know they can afford to pay their credit card bill on time and in full, and they can start establishing their credit history in a slow and steady fashion.
4. Let Them Manage Their Own Bills
Credit cards aren’t the only way to build credit. Though many on-time bill payments aren’t reported to the major credit bureaus, missed or late payments can impact your score. Teaching your child the importance of paying bills on time when they don’t have too many bills on their plate can help them get accustomed to making regular payments – a big component of growing up.
Unlike, say, cell phone bills, loans are a major factor in your credit history. Car loans and student loans can help your child establish credit as long as they pay their monthly statements on time.
5. Apply for a Credit Card for People with Minimal Credit History
If your child is ready to take on the responsibility of a credit card but their credit history is still too thin to be approved, another alternative is to apply for a credit card designed for those with minimal credit history. Student credit cards, for example, are designed for young adults with little to no credit. They typically have lower credit limits and no annual fees to help your child to start establishing credit without too much risk of overspending.
Secured credit cards are another option. Backed by a cash deposit that’s used as collateral, secured credit cards can be a useful way for them to build credit when their financial history is too limited to be approved for a traditional credit card.
Are There Any Drawbacks to Helping Your Child Build Credit at a Young Age?
Teaching good money habits is helpful at any age. However, there are three potential drawbacks to consider before adding a child to your credit card as an authorized user.
- You’re responsible for their spending: If you add your child as an authorized user, you take responsibility for all charges on their credit card. It may be wise to outline your expectations and restrictions if you think your child may feel tempted to spend freely. If they run up major charges that you have to pay back, both of your credit scores could be put at risk.
- You or your child may have privacy concerns: When you’re sharing a financial account, you’ll have visibility into your child’s purchases. While that might seem like a benefit to you, it could be viewed as an invasion of privacy by your child. It’s important to set boundaries and ensure both sides are comfortable with sharing the information before it strains your relationship.
The Takeaway
Helping your child establish credit can be an effective way for them to jump-start their financial lives when they’re ready to leave the nest. While taking out a credit card and using it responsibly can help to establish or build credit, parents can start the process early by adding their children as authorized users and teaching them about the importance of good credit.
Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
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