4 Key Steps For Building Credit At 18 and Younger

Help Student Build Credit

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.

 

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.

 

[Teaching Teens About Money Before Heading to College]

 

 

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. 

 
I’m obviously biased towards helping my own kids learn about credit and financial products and show them how to use them. But from the comments, many families don’t believe in introducing their children to credit cards, maybe because of their own prior bad experiences. This is valid but I still believe with good education on financial literacy and a parent to guide, teens and young adults can learn important financial habits about how and when to use credit cards. 
 
I posed this question to members of our Paying For College 101 group and here’s what some said…
 
“Speaking from personal experience, I opened credit cards when I turned 18 with no guidance from my parents. I ran up credit card bills and literally paid for it once I graduated college. I will be guiding my kids, learning from my own costly mistakes. Repairing credit takes a long time”
 
 
“My 14 year old kids can’t be authorized users of my credit cared til they’re 16 but I plan on adding them then. I’m going to call US Bank to confirm that’s the rule (it’s just what I read online). They’ve had their own debit cards on their own accounts for years so I’m not worried about it.”
 
 
“I sent my freshman to college with his own credit card for emergencies. He applied and got it on his own after 2 years with a great history on a debit card.”
 
 
“Not many people make it through life without ever taking a loan. Learning the ins and outs of credit- loans, mortgages, credit cards, finance companies, and even the dreaded payday advance companies is critical to their futures. They need to see how credit works, how to determine good and bad credit risks, and learn the terms of lending in order to make educated decisions. A credit card is a beginning step. As with any beginning steps, they need to be handled with care and under guidance.”
 
“You need to know your child…Everyone is different. Mine is VERY responsible as a freshman at college. She opened up her own cc online all by herself, and pays the bills all by herself on the 1st of the month with her pt job money. NOW my son…different story!”
 
There’s no right or wrong answer to whether or not you want your child to have a credit card, but please don’t avoid discussing credit, loans, and financial products. As a parent mentioned, it’s unlikely they will get through life without ever encountering any of this.

 

Best,
Debbie, Founder Road2College

 

 

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  1. Kid opening up a savings or checking account, getting a part-time job — good ideas. Adding kid as authorized user to parent’s credit card, kid getting their own secured credit card — bad ideas. There’s plenty of time for kids to grow up, get older, become more mature and better informed/educated on how to handle personal finances responsibly. Even if taught at a young age about how to handle finances responsibly, kids do not have the maturity or experience level yet at age 18-21 (the primary college years) to actually put into practice in a consistent fashion, the rules of responsible finances. Also, the risk is VERY HIGH that even the most responsible young person, including and especially college age kids, can easily and unwittingly become easy targets for others that they encounter at middle, high school and college especially to steal their credit cards, obtain security pin codes, and also become victims quite easily of identity theft. Once kids are out of college, then the risk still remains for these things to occur, particularly identity theft, but the risk drops greatly once the are out of the day-to-day school or college scene, and the risk of random other kids being able to easily access their wallets, purses, backpacks, etc. Reloadable debit cards or with the dependency of cell phone use by kids, banking apps such as ApplePay, Paypal, Zelle, etc. would be more secure for kids to utilize. Plenty of time later for kids to build their credit history once college is behind them.

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