4 Key Steps For Building Credit At 18 and Younger
When it comes to paying for college, one of the keys is to have excellent credit.
Your child may not start off at age 18 with good credit, but they can build it if they are financially responsible over time. As they build good credit, they will be eligible for better rates and may be able to remove cosigners from their loans, including student loans.
Helping your 18 year old or younger teens build good credit can be difficult, because they may not be receptive to the steps you tell them that are needed to build their credit. In fact, they may perceive your advice as “lecturing.” Instead, start helping them understand money at a young age if possible, when they are still open to “hearing” your advice. Also, consider letting them know about your own financial journey, which can help them gain lessons without feeling the “lecture”.
In addition to these ideas, consider taking the following steps to help your teen and college student begin to develop good credit.
Help Your Student Get Checking and Savings Accounts
The first step toward financial literacy is to have bank accounts to work with. At many banks, a checking and savings account can be started (with parental permission) for children and teens.
One thing to avoid is simply adding their name to your normal checking account.
Unfortunately, this gives them access to all of your financial information and funds at an age when reckless decisions are common.
Instead, help them get started with their own account. They can start learning the basics of earning, spending, and saving.
Encourage or Require Your Teen to Have a Job
Working may not be what most teens consider fun, but it can have a huge impact on their lives. Not only does working allow your child to earn their own money, it also gives them confidence, a sense of independence, and practice building a work ethic.
Having a job can also help your teen learn to relate to authority figures, difficult coworkers, and customers. These interpersonal skills are invaluable when it comes to succeeding in college and beyond.
There are a number of part-time jobs for high schoolers that can provide them with a nice income.
Finally, having their own money can give teens a chance to practice budgeting, paying bills, and other financially responsible behaviors. This can give them a leg up when credit is available when they are 18.
Consider Having Them As an Authorized User on Your Credit Card
You can add your teen to your credit card at any age on many cards.
Some cards require your teen to be between ages 13 – 16, depending on your credit card company.
Adding your teen as an authorized user can help your child build credit before they’re old enough to have their own card.
However, an authorized card user has access to the balance on the credit card just like you do. So you need to be comfortable with the maturity of your child and willing to assume responsibility for any mistakes they make.
Some banks allow you to manage the authorized user’s access to credit, which can help give you peace of mind as your child carries around a card with their name on it. That way they can practice using credit and paying it back, with interest, while they are under your roof.
The accounts your student is authorized on will probably appear on their credit report. You can check with the credit card company before adding them to be sure. Once they are on your account, your credit activities on that card affect both you and your child – for better or worse.
Look at Student or Secured Credit Cards
Once your child is 18, it’s probably time for them to apply for a credit card in their own name. College students may be able to get student credit cards, which are geared toward young borrowers.
Keep in mind that those under 21 will have to prove that they have enough income to support a credit line, so a part-time job will probably be needed. If that’s not a possibility and your child doesn’t yet qualify for a regular credit card, you might look at a secured card instead.
A secured credit card requires a deposit, usually a few hundred dollars.
This deposit is generally equal to the credit limit on the card.
There’s basically no risk to the bank, so almost anyone 18 or older can be approved.
The only problem with a secured card is the fees. As a result, a secured credit card should be seen as a short-term solution until your student is able to qualify for an unsecured credit card from a bank.
Good Credit is a Great Start
Sending your child out into the world on their own, whether to college or to a full-time job and their own housing, is a bit scary. However, if you’ve done what you can to instill good credit and financial literacy, you’ve done a lot to give your child a great start.
As your child continues to build credit, they will get better rates, be able to refinance loans, and much more. They are on the path to financial success!
Note: After sending this article to our newsletter subscribers, we quickly received a large number of responses in favor of this information and some vehemently against it.
We had never had such a quick reaction to one or our posts.
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