To be true, there’s no specific age to help your kids build their own credit.
I can understand how worried you are about your kid’s ‘credit future’, given the current debt crisis our country is going through. Good credit seems to be a precious jewel to preserve nowadays.
But worry not. Building a good credit portfolio from an early age is actually very easy. Only you just have to have patience and play a few tricks to set the good credit scores rolling.
So how to build credit for kids?
- First teach them healthy money habits:
Proper training crafts the brightest of soldiers.
First teach your kids how to use money wisely.
Soon they will be playing fireball with loans and cards. Hence build the platform for them.
Show them the differences between spending and saving.
Tell them that the more they save, the more can they spend, and the less will they have top borrow from people.
You see I can’t tell you how to teach your child financial ethics, because that will be beyond the scope of this article.
But all I can say, is that, your son should at least know 3 basic things.
- Nothing comes for free in this world. (Never give them pocket money for free, make them do some work)
- Credit is what he borrows from others.
- And credit once taken, must be repaid
- Have them open their first savings account:
This is the second thing you should do. When they will have their first savings account and a debit card, they will know the basics of banking.
If they are responsible in using a debit card, then they will grow the habit of using plastics cards wisely.
Also having a savings account open, will bring in them the tendency to save money. You need to teach them that savings is way more important than spending.
- You can make them the authorized user of your credit card:
The first step toward helping your child build credit history, is to make them the authorized user of your own credit card, if they can’t qualify to get their own.
Now few things are completely up to you, like how you will teach your kid, not to overuse the card or that this card is not for your kid to use, but to only establish credit history.
Making your kid the authorized user, will open his credit history. So your transactions will be reflected in your kid’s credit report too. Your payment report will impact directly your kid’s report.
Only you need to be aware of the dark side, that if your kid abuses the card and do haphazard transaction and spending, then you will have to do the hefty payments.
Hence, get these few things clear with your kid, and then go for this authorization option.
- If they want their own credit card:
First they will have to be at least 18 years old. Next they must have a stable source of income.
So if your kids have just entered the college premises, then you can motivate them to get their own job.
After they can show the bank, that they are capable to use credit cards, then they can have their first credit account opened, on their own.
Else you can cosign a credit card with them, if they want a credit card, without meeting all the required financial obligations.
But remember, co-signing your child’s credit card, can turn out to be hectic. If your child abuses the card, and becomes helpless, in paying back the outstanding balance, then the bank will charge you, and you will be responsible to pay back the balance, because your name is on the card too!
- If nothing works, then get them a secured credit line opened:
A secured credit card will demand you to make a security deposit, before the bank hands over to you the credit card.
The security deposit you make will be a lump sum amount, and this money will both be the collateral and the limit for the credit card.
So if you make a $1000 deposit, then the card limit will also be $1000, or a bit less, but not more.
Now if your kid can’t handle the debt payments, then the bank will confiscate the security deposit, and the account might be dissolved.
People take out secured credit cards to build credit history from scratch.
Actually it’s not at all difficult to build credit from young age. To be precise, I in fact inspire parents to consider credit as a part of their children’s education.
If we can teach the children from an early age, the use and misuse of credit accounts, only then can we expect to see a future generation in our country, who knows how to use credit wisely, and ward off the devil debts, under which our country’s economy is crushed right now!