Help Your Child Build a Good Credit Score
Posted on 2015-04-29 09:00:01
Ultimately, your child’s credit score is his or her responsibility. But as a parent, you can help your child get off to a good start.
Getting credit can be a Catch-22. Creditors want to see your credit history. A child or young adult just starting out won’t have a credit history. Adding your child to one of your credit card accounts as an authorized user can be a good first step toward establishing a credit history and, ultimately, a credit score. Most credit card issuers will report credit card activity for all authorized users to the credit bureaus, thus helping establish a credit report for the child.
An authorized user is just that—someone authorized by an account holder to use an account. The authorized user does not have to apply or qualify, but has full privileges for use of the credit card without any liability for the debt. Responsibility for the debt remains with the account holder.
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How It Works
The account should show up on the credit reports of all authorized users. It is important to remember, though, that responsibility for the account remains with you, the primary cardholder. Never forget that you are responsible for all charges made by an authorized user. Know who you are trusting! Set limits up front, and if necessary, maintain control of the physical card.
No Substitute for Education
Don’t miss opportunities to educate your child on how credit works. It is amazing how many college students don’t have a basic understanding of finances including credit reports and credit scores and how they can affect their life for years. They need to know their credit report will be their new report card, and their credit score will be their new GPA. They need to understand that credit is not free money. If it’s not paid in full each month, interest usually accrues.
Maintaining a Good Score
Once your child gets started, stress the importance of maintaining a good credit score. It rarely happens by accident. Late payments—even just a single late payment--will knock a good credit score down in a hurry. And just as your child cares about what is said about him on social media sites, he should learn to care what his credit report says. Mistakes do happen, and it is ultimately his responsibility to ensure that the information on his credit report is accurate.
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