Over the course of the pandemic, families had ample time and reason to scrutinize their finances. At Finder, we have seen an increased interest in children’s banking products and more and more children’s banking products, including children’s debit cards, are becoming available. However, when it comes to credit cards designed for children 18 and under, few, if any, products hit the market. That was true before and during the pandemic.
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For better or worse, an excellent credit score is hard to build and easy to lose. According to recent data from Experian, the average credit score in the US has been rising in recent years, although Millennials and Generation Z consumers have credit scores that are just in the high to mid 600s, which is classified as a “good” credit score.
Baby boomers, on the other hand, have an average credit score that hovers around 730, which is “excellent”. There is often a big difference in the credit products and loan options available between good and excellent credit, so the sooner you start building your child’s credit, the better.
How Can I Start Building My Child’s Credit Without a Kids Credit Card?
Even without a kid’s credit card in your wallet, you can still help build your kid’s credit. You want to do this as soon as possible, as a good credit score goes a long way in setting up financial success. You have 2 main options for building up your child’s credit.
Add your child as an authorized user on your credit card
There are no credit cards on the market that are designed for persons under the age of 18. However, many card providers do not have a minimum age for adding a child as an authorized user.
As an authorized user, your child can use your credit card freely, but the account holder (you) is responsible for paying the account balance.
All credit activities performed on a shared account affect both the main account holder and the authorized user. This means that you can start building your child’s credit from a very early age as long as you practice good credit habits.
Make sure to choose a credit card that reports to all 3 major credit bureaus and one that best suits your financial needs. For example, a balance transfer credit card can help you pay off interest-free while helping your child build credit.
Have your child co-sign a loan
Having your child co-sign a loan works the same way as adding an authorized user to a credit card. They will reap the benefits of your on-time payments, although they will not have the option to “use” the loan, unlike a credit card.
School loans, car loans, and personal loans are all popular choices to sign with your child due to their practicality. In addition, it is more beneficial to have a mix of credit types in a credit account than just one credit type.
Teach them financial literacy
As you build your child’s credit, teach them how credit cards work and healthy financial habits. Teaching your child a few fundamental principles will help them keep their credit score after opening their own account.
A good place to start is by demonstrating the differences between credit and debit cards. Sign up your child for their own debit card to help them understand the basics of banking. From there, you can explain how to repay credit cards on time each month. Once they’ve mastered the basics, move on to other credit card-specific information such as credit reports, fees, credit limits, and rewards.
You have 2 goals when building your child’s credit. The first is to give them the financial knowledge necessary for success from adulthood and beyond. The second is to give your child the excellent credit score they need to choose from the best credit cards on the market.
Since some of these cards can generate hundreds or even thousands of dollars in value each year, it pays to prepare your child with excellent credit. That way, they can access the best options available when they’re ready for a first credit card.
Choosing your first credit card for children
Apply for a rewards or cashback credit card to best help you and your child on their credit journey. Even if you don’t have the credit score for a premium card, a cash back credit card is an ideal credit card for kids because it naturally generates value during the credit-building process.
If you’re concerned that a rewards card will encourage you or your child to spend aggressively, a 0% intro APR card is also a good choice. Depending on the type of intro APR, you can save interest on existing debt or make large purchases and pay them off interest-free over the promotional period.
Education is the way to financial success, now and in the future
The risky nature of borrowing on credit means that we are unlikely to view credit cards for children in the same way as banking products for children.
Given the importance of a strong credit score for major purchases, helping your child build credit early should be a priority. It gives them a big head start when they are ready to strike on their own.
Article by Steven Dashiell
About the author
Steven Dashiell is a writer at Finder specializing in all things credit card related. His expertise has been featured at numerous outlets including US News & World Report, Time, CBS, Fox Business, Lifehacker, Martha Stewart Living and more.