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How (and When) to Build Your Child's Credit

April 23, 2019
9 min read
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As a parent, you're responsible for teaching your children many things. When kids are young, you help them learn how to talk and walk. As they grow, you show them how to read, write, and count. Eventually, you start to teach your kids the value of money and how to be financially responsible.

Part of those financial lessons may one day include credit — how to build it, use it and manage it the right way.

Keep reading for a breakdown of how (and when) to start helping your child build credit for the very first time.

Authorized User Status

Perhaps the easiest way to help a child build credit is to add him/her onto your existing credit card account as an authorized user.

Adding a child as an authorized user is typically easy. You just need to call your card issuer and make the request. Customer service will walk you through the process and you'll need to provide your child's name, perhaps with other personal information like date of birth and Social Security number.

(Photo by Anchiy / Getty Images)
Adding a child as an authorized user is typically pretty easy. (Photo by Anchiy / Getty Images)

When you add your child as an authorized user, you have the chance to help your son or daughter build credit without putting your own credit rating on the line.

Of course, like any credit building strategy, the authorized user method has some pros and cons you should consider before moving forward.

Pros

  • Most card issuers will report credit history to Equifax, TransUnion and Experian for authorized users as well as primary account holders. (Here's a list of which card issuers report authorized user accounts to the credit bureaus.)
  • Your child's credit could benefit from your good payment history and the age of your account (assuming the account has no late payment history and shows up on his/her credit reports).
  • Some card issuers, like American Express, let you set monthly spending caps for authorized users. This keeps authorized user from charging more than you've given them permission to charge.

Cons

  • Some card issuers charge an annual fee for adding authorized users. This annual fee is often less than the one you pay as the primary card holder; however, they can still add up, especially on premium cards like the Platinum Card® from American Express and Chase Sapphire Reserve.
  • If your credit card ever has negative information associated with it (like late payments or high utilization), the account could hurt instead of help your child's credit rating. However, you could call your card issuer and ask to have your child removed as authorized user (and likely remove the account from your child's credit reports) if that should happen.
(Photo by Eric Helgas for The Points Guy)
Annual fees can still add up, especially on premium cards like the Amex Platinum and Chase Sapphire Reserve. (Photo by Eric Helgas for The Points Guy)

Credit Builder Loans

Another strategy you can use to help your child build credit without the danger of co-signing is a credit builder loan. A credit builder loan is a low-risk financial product which is typically easy to qualify for, even with no previous credit history.

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Here's how these loans could help your child establish credit.

  1. Your child applies for a credit builder loan with a local credit union, community bank or online lender.
  2. If approved, the loan amount is held by the lender in an interest-bearing savings account.
  3. Your child makes payments to the lender for a short period of time (usually 12-24 months).
  4. Once the final payment is made, the lender releases the loan from savings plus any interest earned.

Credit builder loans represent a great way for your child to establish credit on his/her own. Still, the method has some pros and cons you should know upfront.

Pros

  • Because the loan is essentially secured with the money you're borrowing, lenders consider these products to be low risk. As a result, approval criteria isn't as strict, and you'll likely qualify for a loan with no credit history, little credit history or even damaged credit.
  • At the end of the loan, you'll have a small fund (typically $500-$1,000 plus interest earned) which you could spend to start an emergency fund, pay down debt, or use however you choose.

Cons

  • Some credit unions and online lenders don't report account history to all three credit bureaus. If a lender doesn't report your account to Equifax, TransUnion and Experian, you won't have the chance to build credit as effectively.
  • Credit builder loans aren't free. Your lender may charge you interest and fees. Usually interest and fees are on the low side, but some lenders charge rates in the double digits. You should always check out loan terms in advance and shop around to make sure you're getting a good deal.

Why You Should Avoid Co-signing

You love your child and want to help your son or daughter establish a good credit rating (otherwise you wouldn't be reading this article). This desire to help might make you tempted to co-sign for your child's first credit accounts.

(Photo by Steve Debenport / Getty Images)
Consider the risks before you co-sign for your child's first credit accounts. (Photo by Steve Debenport / Getty Images)

Co-signing, however, is a mistake you should avoid (and one you should teach your child to avoid as well).

When you co-sign, you put your own personal credit on the line. If your child manages the account poorly (even by mistake), your personal credit could take a hit. The credit damage caused by late payments and other derogatory activity can last for many years, even if you're "just" a co-signer.

Worse, when you co-sign you teach your children that doing so is a good way to help out a loved one. In reality, co-signing is a dangerous risk to the health of your own credit. Maintaining credit independence is an important lesson to teach your children early in life — one which can help them protect their own credit for years to come.

When Should You Start Helping Your Child Build Credit?

There's no perfect time to help your child start building credit. The "right" time is going to depend on two important factors – lender policies and your personal feelings.

Lender Policies

Authorized Users

As far as credit cards are concerned, there's no minimum age (legally speaking) that your child needs to reach before you can add him/her as an authorized user. The CARD Act does place age restrictions on when your child can open a credit card of his/her own (it's 21 years old or 18 years old with a job or co-signer, in case you're interested). However, the law doesn't impose age restrictions for authorized users.

Nonetheless, credit card issuers have their own policies as it pertains to how old authorized users need to be. Here's a look at minimum age requirements for authorized users, based on card issuer policy.

  • 18 Years Old: Bank of America
  • 13 Years Old: American Express, Barclays, Discover
  • No Age Restriction: Capital One, Chase, Citibank, Discover, US Bank, Wells Fargo
(Photo by Maskot / Getty Images)
Depending on the bank, there may be an age restriction for authorized users. (Photo by Maskot / Getty Images)

Credit Builder Loans

Most credit unions and online lenders will allow someone to open a credit builder loan once they've turned 18 years old. Legally, you must be 18 to sign a contract, so a credit builder loan won't be an option anywhere before then.

Personal Feelings

There's no right or wrong age to start teaching your child about credit. If you want to use a credit card as a tool to educate your child about credit at a young age, you can add your son or daughter as an authorized user as soon as your card issuer allows it. If you think it's better to wait until your child is closer to 18 before you add him/her to your credit card, that's okay too.

Credit Education Is Key

There's nothing wrong with wanting to help your child establish good credit. Once your child enters the "real world," having good credit can make it easier to rent an apartment, buy a home, purchase a vehicle and even land a job.

(Photo by Alex Potemkin / Getty Images)
Having good credit can make it easier to rent an apartment. (Photo by Alex Potemkin / Getty Images)

Just remember: While helping your child establish good credit is a great idea, teaching your child how to manage credit and finances responsibly is the most important lesson you can pass on. Educate your kids about the importance of on-time payments, avoiding credit card debt and keeping an eye on their credit reports. If you don't, they might learn these lessons the hard way. That's probably the last thing you, as a loving parent, want to see happen.

Featured image by Getty Images/Tetra images RF
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
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Best card for premium perks while traveling
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

10XEarn unlimited 10X miles on hotels and rental cars booked through Capital One Travel
5X5X miles on flights booked through Capital One Travel.
2X2 Miles per dollar on every purchase, every day
  • Intro Offer
    Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel

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  • Annual Fee

    $395
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    740-850
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Why We Chose It

The Capital One Venture X card is one of the best all-round travel credit cards ever launched. Not only is it offering a tremendous welcome bonus, but cardholders can earn tons of miles on everyday spending and receive a 10,000-mile anniversary bonus to boot. Its annual fee is $395, but cardholders can count on up to $300 in statement credits toward travel booked through Capital One Travel each year and other valuable benefits like access to Priority Pass lounges and Capital One’s own growing family of airport lounges.

Pros

  • Excellent welcome offer worth 75,000 miles after you spend $4,000 on purchases in the first three months.
  • Up to $300 in annual travel statement credits toward bookings make through Capital One Travel.
  • 10,000 bonus miles (worth $100 toward travel) each account anniversary.

Cons

  • The $395 annual fee might be expensive for some, but this card’s benefits provide much more value than that.
  • If you don’t travel frequently, this might not be the best card for you.
  • Earn 75,000 bonus miles when you spend $4,000 on purchases in the first 3 months from account opening, equal to $750 in travel
  • Receive up to $300 back annually as statement credits for bookings through Capital One Travel, where you'll get Capital One's best prices on thousands of options
  • Get 10,000 bonus miles (equal to $100 towards travel) every year, starting on your first anniversary
  • Earn unlimited 10X miles on hotels and rental cars booked through Capital One Travel and 5X miles on flights booked through Capital One Travel
  • Earn unlimited 2X miles on all other purchases
  • Unlimited complimentary access for you and two guests to 1,400+ lounges, including Capital One Lounges and our Partner Lounge Network
  • Receive up to a $100 credit for Global Entry or TSA PreCheck®
  • Use your Venture X miles to easily cover travel expenses, including flights, hotels, rental cars and more—you can even transfer your miles to your choice of 15+ travel loyalty programs
  • Named editors' choice for "Best New Credit Card of 2021" by The Points Guy
  • Earn 10 miles per dollar when you book on Turo, the world's largest car sharing marketplace, through May 16, 2023