5 Ways to Help Your Teenager Become Credit-Savvy
As a parent, you want to set your teenager up for financial success. They’ll need to know about managing credit, but you may wonder how and when to offer guidance. At what age can your teen start building credit? Can they start building credit at 17? Is 15 too early?
In the U.S., a teen must wait until age 18 to open a credit card account in their own name, but you don’t have to wait to prepare them. They can already start developing knowledge, skills, and a track record that will tangibly impact their credit history and credit score in the future.
Establishing good credit early on goes a long way. It can affect everything from securing student loans to getting approved for a mortgage. So here are five steps you can follow to help your teen become credit-savvy and gain credibility before they get a credit card.
1. Create a Connection with a Financial Institution
The first step in helping your teen build credit is to open a teen debit account. Opening a banking account introduces them to money monitoring and management. It can also make life simpler when the time comes to apply for credit if your teen already has a relationship with a credit union or bank as a member or customer.
2. Encourage Your Child to Pay Their Bills On Time
Paying off credit cards on time and in full is a crucial debt-management strategy that can help minimize debt later in life. Avoiding high levels of debt is important for a good credit score, but modern payment technologies such as tap and pay by phone make it easy to lose track of purchases.
Getting your teenager to be punctual with bill payments is a great way to help them build healthy financial habits including the habit of reviewing their spending. Put a bill in your kid’s name—for example, their phone bill—and make sure they pay it monthly. This will also establish a payment record that their credit report will acknowledge.
If your child has earned your trust, you can go bigger. Co-signing a loan or a lease with them lets them establish credit even if they’re not eligible for a credit card. So if your 16-year-old is responsible and ready for their first car, consider putting them on the paperwork.
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3. Include Your Teenager as an Authorized User
Teens between the ages of 13 and 17 aren’t eligible for their own credit cards, but you can likely add them to one of your cards as an authorized user. Some card issuers don’t have any minimum age requirements for authorized users. At Citadel, an authorized user must be at least 16 or older. Your teen’s activity as an authorized user is reported to the credit bureaus, enabling them to establish a credit history early.
Of course, you should check with your issuer ahead of time to make sure that the activity of each individual user is reported—not all issuers do this. (Citadel reports the account credit history to the three major credit bureaus for card owners and any authorized users.) But make sure your teen is responsible with their privileges – otherwise, their credit history will be off to a rocky start, and interest charges could accrue on unpaid balances.
4. Consider Applying for a Secured Credit Card
If your teen is nearing the age of 18, see if they’d be interested in saving up to provide the cash deposit on a secured credit card. Secured credit cards are great for first-time borrowers because they’re easier to acquire than unsecured ones. The deposit lowers the risk for the issuer, and this type of card usually has lower available credit.
Secured cards can also be opened jointly, so you can continue to support your teen in their transition to financial independence.
5. Be Proactive with Credit Reports
Look at your child’s credit report regularly. Long before your teen can apply for their own credit card, it’s possible for errors or fraudsters to establish a problematic credit report in their name. The main credit bureaus—Equifax, Experian, and TransUnion—will allow you to check in on your teen’s credit report once a year, as well as dispute questionable activity. However, if no activity has occurred, you’ll likely find that no profile exists in their name yet.
Your teen is short years away from making their own financial decisions. Helping them become credit-savvy today can give them confidence when they take on adult financial responsibilities. Fortunately, you don’t need a credit card account to build credit card accountability.