How To Build Credit For Your Child
We all want our children to have opportunities we did not have when we were kids. Likely, you started out with absolutely no credit and found it difficult to get your first loan, or credit card. Today, we will show you how to
jumpstart your child’s future by showing you how to build credit for your child. It’s a known fact that having no credit at all is far worse than having bad credit. Let’s face it, our monetary system is not based on gold, silver, or any other precious commodity. It is based on credit and debt. Credit is your purchasing power. Let us show you 4 very simple and fast ways to build credit for your child.
A Quick Introduction To How Credit Works
In order to build credit for your child effectively, you need to know how credit works, and how to make the most impact. If you check out our blog, we did a whole series of articles on the topic of credit building. The very first article gives a detailed lesson on the credit scoring factors. Learning these factors will help you add the perfect mix of credit, which accounts for 10% of the credit score, and have the oldest average age of accounts, which is 15% of the credit score. So, this is 25% of your child’s credit score that you can
control from the start. The other 75% will be up to them in how they manage their own credit. Teach these scoring factors to your children, and they will be off to an amazing start and have a bright future full of purchasing power that we did not have growing up. Unfortunately, credit management is not taught in schools, so it is up to you to show them how to manage their credit effectively and responsibly. We offer 1 tool that you can start with your child at any age, to show them how to use and manage a credit card responsibly. It’s called GreenLight. Click Here to get GreenLight for your young child.
The Perfect Credit Mix
Before we proceed with the 4 ways to jumpstart your child’s credit future, let’s discuss the first 10% of their credit score which is mix of credit. The credit scoring models (FICO and Vantage) like to see a variety of accounts on your credit report. It also shows lenders how you manage different types of accounts. Although there are many types of credit, there are only 2 types of accounts, revolving or installment. Although there is no exact science on credit mix, we recommend 2 revolving accounts, and 2 installment accounts as a good start.
Revolving accounts are credit cards, or open ended loans. These are accounts you can use, pay down or off, and use again. These accounts stay open until you close them, or the lender closes them for whatever reason such as, non usage or defaulting on the debt. It is important to keep revolving accounts open as that is where your average age of accounts come from (that other 15% of the credit score). Be sure to always use the credit line periodically, and ensure payments are always made, and made on time.
Installment accounts are fixed term loans. These are accounts that are loans for a fixed dollar amount, and typically for a specific purchase, such as a mortgage, or a car loan. These also cover personal loans. These typically have a fixed interest rate and monthly payment. Once the loan is paid off, or has gone into default, the accounts are closed.
4 Fast And Easy Ways To Build Credit For Your Child
1. Add Your Child As An Authorized User On Your Credit Card
The fastest way to build credit for your child is to add them as an authorized user on a credit card you already have. Essentially, this allows your child to piggyback off of your credit history. When adding them as an authorized user, your child instantly gets that card’s history reported on their credit report. Both the age, and 2 years of payment history. When you add them, they will
receive a card in their name to use freely. However, they are not financially liable for making payments on the card, and they will not be responsible for any debt should the account go default. It will be up to you to decide if you want to actually give them the card to teach them how to use credit, or if you hold onto, or destroy the card, and only allow them to piggyback on your credit history. You can do this temporarily until they establish their own credit, or keep it active to help them indefinitely.
Cautions To Consider Before Making Your Child An Authorized User
- Choose which card to use wisely. You want this card to have low utilization of credit line (30% or less of the credit limit), to have no late payments in the last 2 years, and for the card to be the oldest possible.
- Remember they are piggybacking on your credit, so both the good and bad will report.
- You are financially responsible for the card, if you give them the card to use and they max it out, it’s on you, not them.
If you do not have a good card to use, or you don’t have a credit card, you can use an authorized user tradeline broker service to purchase an authorized user tradeline broker service. On our credit building page, we have 2 different sources for authorized user tradelines that we recommend, that will report for a period of 2-3 months. Long enough for them to establish their own credit. Those sources are GCL Credit and Tradeline Supply Co.
2. Use Secured Credit Builder Cards
Secured credit cards are another great way to build credit. There are 2 types of credit cards. Secured, and Unsecured. A secured credit card is opened by a required deposit, and often the credit limit is the deposit amount. In time, after responsible usage and months of on-time payments, these secured credit cards can become unsecured credit cards with higher credit limits. Secured credit cards are often the go-to source for credit building. We have 2 sources for secured credit cards we highly recommend you check out.
Credit Builder Card (Pictured Above)
Credit Builder Card is an awesome secured card. $200 security deposit gets your child started with their very first credit card, or can help you rebuild your credit while in or after the credit repair process. They report to all 3 credit bureaus up to 6 times a month to help boost scores and add positive credit to your credit profile.
Credit Card Broker
Credit Card Broker offers a large variety of secured credit cards to jumpstart your child’s credit and also can help you restore your own credit. Credit Card Broker is also a great source for Greenlight, unsecured credit cards, installment loans, and even auto loans! Click the button below to check out their latest offers!
3. Get Your Child’s Rent Reported On Their Credit Reports
Traditionally, rent is never reported to the credit bureaus unless you stop paying rent and they send your account to a collection agency. However, there are options now that exist where you can get your child’s rent payments reported to the credit bureaus. All they need is the rental agreement, and landlord contact information.
You may ask, What if they live with me? Well, this can still be a powerful asset for you and your child. Simply draw up an agreement, and let them pay you rent. They’ve lived with you 18 years rent-free, now it’s time for them to pony up and learn what the real world is like! Simply draw up a small agreement, back date it 2 years or more (this way you maximize the credit score potential). Now let’s show you how to get your child’s rent reporting to the credit bureaus.
Introducing Rent Reporters
Rent Reporters is an awesome company! Before now, doing something most people do every month has never rewarded you on your credit. People with mortgages enjoy the help on their credit, why can’t renters? Rent Reporters has changed the game. Reporting up to 2 years of
positive payment history to Equifax and TransUnion (Experian is coming soon). Renters can now enjoy the same benefits as those who pay a mortgage note! Your child can also reap the rewards of Rent Reporters Click the button below to sign you, and/or your child up to get rent reported to your credit reports, and keep reading for our final tip.
4. Get Guaranteed Acceptance Installment Savings Accounts
I had to save the best for last. These credit builders I am about to show not only help you build credit for your child, but these options also build up a savings for them that they can access when their credit building program has matured! Simply choose the amount you want to save or the monthly deposit you want them to pay, each month they deposit into their interest earning savings account they get positive payments added to their credit reports.
I’m sure you remember quite well when we were kids we would blow our paychecks on the weekends because of our new found adult freedom, only to get snapped into reality when we had to humble ourselves and go to our parents to ask for gas money to get to work the next week. Now, instead of preaching to them about saving money, you can actually make them do it and build credit at the same time. What’s not to like about that?
Self Lender (2 Credit Building Accounts, 1 Service)
Our personal favorite at Credit Wellness Solutions is Self Lender. Why? Because with their program you will get 2 positive credit tradelines reporting on your credit report to assist with your credit mix. Self Lender first reports an installment tradeline. Your child will make small monthly deposits into an interest-earning CD account that saves money for them they can withdraw when they complete the program. Then after making 3 on-time payments and $100 in savings, they will have access to the Self Secured Visa Credit Card! This will then add a revolving tradeline to their credit.
This is why this credit builder is our personal favorite! Here is something else to chew on. With the current inflation crisis of 2022, the Federal Reserve has been raising interest rates. These rate hikes also affect CD accounts, which means your child will earn even more interest as they save money! Saving money and building credit at the same time, it can’t get any better than that! Click the button below to get you child started with Self Lender.
Credit Strong (Can Build Both Personal And Business Credit)
Credit Strong is another awesome service! Just like Self, you are saving money and building credit at the same time! I will mention that Credit Strong has longer terms so your child could walk away with quite a good amount of cash with this savings program! You can also use Credit Strong to build business credit as well! Click the button below to get your child’s credit off to an amazing start, and build a nice savings while doing it!
Honorable Mention
While none of these credit builders will break the bank by themselves, we wanted to mention a great starter credit builder that is amazingly cheap. This is a great option for those whose kid doesn’t have a job just yet, and can’t afford to make a monthly payment. Let’s take a look…
Introducing Kikoff
Kikoff is just what their name suggests… Kick Off your child’s credit profile. Kikoff is an amazingly cheap service with a payment of only $5 per month! That reports a $500 revolving tradeline on your child’s credit report. For a total cost of $60 you will get your child’s credit off to a great start!
Final Thoughts
I sure wish these credit building options were around when I was a kid! I’m sure you do too. The only option we had back then was the authorized user trick, and no one knew it. But the awesome thing is now, we can truly leave our children better off than us. Credit is the currency of the future. You will not have much purchasing power without good credit. These options will give your child plenty of purchasing power for years to come!
Affiliate Disclosure
Credit Wellness Solutions LLC, may receive a small affiliate commission on some of the credit building products above. However, that does not in any way influence this article nor the statements made in this article. This article was written to educate the general public about building credit for your children, and all statements made in this article would be the same regardless of commissions. Credit Wellness Solutions LLC, uses these products to help their credit repair clients to build positive credit and rehabilitate a once broken credit profile and score. Credit Wellness Solutions LLC makes no guarantee or warranty about how many points will be on the credit score as a result of these products.
