Five Tips to Help Your Children Build Credit

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As fledglings spread their wings and leave the nest for college, many Mama and Papa Birds fret for their future. Will they succeed at school? Will they find work upon graduating? Will they be able to afford a little nest of their own? The baby birds’ happiness will have much to do with their personal finances, and therefore, credit scores. As most parents know, nests aren’t cheap and financing them—and other things—relies on building credit. To assure their progeny’s prosperity, parents should consider how best to help them pursue credit score improvement. Here are some options:

Parents can start early by instilling in children the value of a solid work ethic. It’s a tough world out there and there’s no substitute for determination, effort and good, old-fashioned elbow grease, (or to continue the avian metaphor, ‘wing grease’, if you will). For best results, start this process before college. Hard work is a good thing and as soon as a child reaches an appropriate age, a first job should be standard fare.

[Free Resource: Check your free credit report and score]

Get them started by opening a checking and/or savings account in their name. This is another rudimentary but important step. After your child gets that first job, explain to them that building credit is accomplished through a track record of financial responsibility. Don’t be afraid, (once they understand the basics, of course), to let them manage their own account—it’s their money after all, but also their fees and penalties if they overdraw, bounce checks or screw up along the way. As the adage goes, the toughest part of parenting is knowing when not to.

Put a utility account or other small bill in your child’s name. As stated, your credit score benefits most from demonstrating responsible payment history. One low-risk way of building credit is to get the ball rolling by placing a gas, electric, or—increasingly, these days—landline or cell phone bill in their own name. Make sure they understand the cardinal importance of paying on-time, or you may suffer the consequences with them—either short-term by having your lights or phone turned off or long-term when they move back in with you, steeped in debt, unable to afford their lifestyle.

Have your child apply for a store credit card or first secured credit card. This is a slightly more advanced credit score lesson to teach the kids. After they’ve gotten that part-time job and opened a checking or savings account, a small line of credit through a major department store can be a confidence-building step both for your child and the credit bureaus. A card issued through a favorite retailer or another card backed by secured assets, when used responsibly, is a great way to enter the ‘big leagues’ of building credit. What route you choose may depend on the child’s age, as credit card companies don’t offer cards to minors but do solicit through the mail to high school students while requiring a parental co-signer. You can also urge your child to apply for a prepaid card through a major creditor like Visa and MasterCard. This kind of card is issued in their name, but parents can deposit money into the account. Whichever strategy you choose, use your family’s primary home address on applications; lenders prefer stable living situations and home addresses change less frequently.

Co-sign for your son or daughter’s student loan. By doing this, you’re giving them a chance to prove their financial bona fides to the lending world. As with all tips you receive regarding your credit score, the key is on-time payment. Yes, many credit experts consider student loan debt “good debt”, but remember: when building credit, it’s really only good debt if you’re paying it off on schedule. Otherwise, since you’re in this together, your score will take a hit along with your child’s.

[Free Resource: Check your free credit report and score]

As always, when building credit, know where your baby bird is perched by obtaining a free credit score and free credit report through Quizzle, so you can track their progress. For more information, talk to your local bank for other helpful tips to build credit and check out this link. With these tools at your disposal, those still living at the old nest can rest assured their fledgling’s beak is clean and their credit score is flying high, keeping pace with the flock.