Help Your Young Adult Build Credit: Ensure Future Financial Success

Teenage girl holding a credit card at a computer

Help Your Young Adult Build Credit: Ensure Future Financial Success

Published on October 27, 2023

Teenage girl holding a credit card at a computer

This article is sponsored by College Ave Student Loans, dedicated to helping students and families pay for higher education.

Teaching your teenager how to manage their finances and build credit can be challenging, but those are important lessons to impart before sending them off to college. To assist you, we asked parents in our Paying for College 101 Facebook Community to reveal their best strategies for building financial success.

Budgeting for Teens

Before your student can start to build credit, they need to understand basic budgeting and money management skills. But what’s the best way to explain how to budget to someone who’s never had a budget? 

Give them one!

Sunshine S. said that she started the process by providing her student with an allowance, then coached them on how to use it to both make purchases and save money.

Before her student got a credit card, Carolyn A. explained how interest works and the potential pitfalls of charging more than you can pay off. She said that her daughter has become very mindful of her spending habits and only uses her card to make purchases that she knows she can afford.

Now that Andrea P’s son has a job, the family has started discussions about money management. “After he gets his driver’s license, we plan on co-signing a credit card for gas and emergency use,” she said. “We will start teaching him financial stewardship now, so he knows how to live as a college student later.”

Not all discussions about budgeting start in high school. Jennifer M. said her family began the process when her son was in elementary school. Here’s the approach they took:

  • Elementary years: The family discussed making choices, such as “do we waste money leaving the lights on in an empty room or save money for going to the movies?”
  • At age 14: They opened checking and savings accounts for their son and talked about responsibility, goals, and priorities. He was starting to earn his own money doing yard work and pet sitting.
  • At age 16: Mom added her credit card to her son’s phone with Apple Pay, allowing him to use it to buy snacks on school trips, gas, and for emergencies. She also sent him to the grocery store with a list and had him use the card for the family’s groceries. They had more involved talks about how their family makes, spends, and saves money.

Credit Building

The process of building credit unfolds over time. If you haven’t started yet, here are ways to make it happen both in high school and in college.

Make Your Student an Authorized User on Your Credit Card: You can add your student as an authorized user on your credit card as early as 13 years old (depending on the card issuer) to help them establish a credit history. Arum E. added their teens to their credit card when each turned 16 and set spending limits.

Encourage Them to Apply for a Student Credit Card: Some credit card companies offer credit cards specifically designed for students. These cards often have lower credit limits and are a good way to learn to only charge what you can afford to pay off. Applicants between 18-20 years old typically need to have either a cosigner or proof of income to receive a student card in their own name.

Kristi W. said, “My son opened a credit card several months ago at age 19. He’s putting gas on it and then paying it off every month. His credit score is great already!”

Encourage Them to Apply for a Secured Credit Card: These cards typically require a deposit as collateral, making them a safer choice for beginners in the credit world when your student turns 18.

Hunna S. suggests checking with your bank. Their bank offered a secured credit card, which allowed their student to get approved with a deposit and start building credit without the risk of charging more to the card than they’re able to pay back.

Explain the Benefits of Putting Rent and/or Utilities in Their Name: Set up bills, such as rent or utilities, in the student’s name if they’re living in off-campus housing. Making on-time payments can help them build their credit history.

Be Aware That Student Loans Can Help Build Credit: While student loans are primarily for education expenses, they can help build credit if your student makes on-time payments.

Timing Is Everything

Once the question of how to build credit is answered, the question becomes when to begin.  

One parent shared that they started working on their son’s credit when he was 12 years old and “a month after his 18th birthday, he had a 720 credit score.”

After working with her son on basic budgeting skills and financial awareness starting when he was 14 years old, Jennifer M. added him as an authorized user of her credit card when he was a senior in high school because she felt he was ready for the responsibility.

And on the other end of the age spectrum, Sabrina M. said she didn’t even start thinking about helping her son build credit until he was 23 – something she regrets taking so long to do. With her younger children she said she will start in their senior year of high school.

Regardless of when you start the process, make sure to emphasize the importance of responsible credit card use, including making payments on time, keeping credit card balances low, and avoiding unnecessary debt.

And finally, when teens are first starting out, most parents agree it’s best to monitor their credit activity. Continue to educate them on the importance of maintaining a good credit score to allow for future financial opportunities and overall financial success.

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