Creating a credit history for kids under 10 is too early
By Erica Sandberg | Published: August 31, 2016
Dear Opening Credits,
I have two daughters, 5 and 7 years old. I was told I can get them a head start on obtaining good credit later on by opening a credit card under their name while they are still young. If I were to do this, is there a way to “freeze” their cards for several years until they are old enough (18 years old) to responsibly start using them? This way I don’t have to worry about someone stealing their account information and using the card without my knowing. I read an article that claimed most credit cards won’t freeze the account, which is what I would want. If this is the case, do you have any recommendations on what I can do to start building my kids’ credit at an early age? – Roberto
I understand why you’d like to jump-start your kids’ credit rating, however, I’m afraid that you wouldn’t be able to open accounts in their names only. They are too young!
To qualify for a personal credit account, a person needs to be at least 18 years old. That is the minimum age to enter into a binding legal contract. Even then, being eligible for an individually held credit card can be tough. The federal CARD Act of 2009 required creditors to take extra steps to verify that people under the age of 21 can afford the debt they’d get into with the account. Therefore, the applicant would either have to meet specific income requirements, or a creditworthy adult would have to co-sign for the account.
However, some card issuers allow credit card holders to assign authorized users of any age to their accounts. If you were to do this for your daughters now, they may be sent cards with their names. My advice: Tuck your daughters’ cards away. The issuer would send information about the account to the credit reporting agencies, and files would be generated in the girls’ names. Keep the account in good standing by paying your bills on time and in full, and their credit scores would benefit from your positive actions.
Yet I hesitate to suggest making preschoolers and kindergarteners authorized users. Sure, you can hide or even destroy the cards so your daughters won’t get hold of them and go wild at the American Girl doll store, but it’s just not necessary for them to begin a credit history so early.
So when would be the right time to let them piggyback on your cards? In general, when the kids are in their mid to late teens. That will be enough for a few years’ worth of positive account actions to be listed on their reports and factored into their credit scores.
Just be sure that all parties are prepared for the authorized user arrangement. Remember, the credit account will always be solely in your name, so the liability for the payments and balance would be yours alone. To get the kids accustomed to plastic, I recommend you first give them each a debit card that’s attached to a bank account. With a debit card, they can tap their own funds at the register. Many parents find the ’tween years are a fine time to begin this plastic training process.
When they are older teens, adding then as authorized users on your card can make sense. Just be sure to lay down your own laws first, such as the expectation that all charges must be repaid within a month, or they can use their cards to buy only certain things and in specific increments. Whatever your rules are, they should be clear and consistent. If the rules are broken or you just don’t trust them with their cards yet, keep the cards hidden away in a safe place until you deem your daughters trustworthy enough to use the cards.
I don’t think it’s necessary to freeze your daughter’s accounts out of fear of identity theft. As the primary account holder, you should be on top of any account fraud on your and their accounts when you check your statements. Once you add your daughters as authorized users, you can monitor their credit reports (and yours, too) – you can get credit reports for free once a year from each of the big three credit bureaus (Equifax, Experian and TransUnion) through annualcreditreport.com.
Carefully review the trade lines to be sure there isn’t anything there that shouldn’t be. If you do find something unusual, you can dispute it through one of the credit bureaus and file an identity theft report through the Federal Trade Commission.
After the kids have been associated with the well-managed credit card account for a few years, they will have what you want to give them: an established credit history!
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