How to help kids build credit before age 18
Consumer finance expert, author and “Opening Credits” columnist.
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Dear Opening Credits,
I'm wondering if there is a way to start building credit for my daughters before they turn 18. I know the law states that a person under 21 cannot be granted credit without a co-signer or proving the means to pay back the money, but secured cards are not really credit cards are they? I'm guessing the bigger issue is entering into a legal contract under the age of 18 right? Is there any loophole here? – Brian
You can probably jumpstart your daughters’ credit ratings with a simple process. No loophole, co-signing or proof of income necessary. Just make then authorized users on your credit card account and soon your children will be on their way to building a credit rating of their very own.
The majority of credit issuers permit primary account owners to add minors to their account as authorized users. Most allow teenagers, but some will let even younger kids have cards attached to the owner’s account. Call or log onto your credit issuer’s website to find out.
If your girls meet the age requirement, you can add them over the phone or by filling out a form online. Whichever way you do it, you’ll need to provide the issuer with their names and dates of birth, as well as your mailing address. You may or may not be asked to provide their Social Security numbers. The girls will then have their own credit cards imprinted with their names sent to your home address.
Whether you allow your daughters to have and use the cards is up to you, but your account and its payment history will soon appear on their consumer credit reports. At that stage their credit history will be born. As long as you treat the account well by using it often, keeping the balance low (or, preferably, at zero), and sending all the payments before the due date, their credit history will be positive.
Mind that as the primary account holder, you bear full responsibility for what happens with the account. That means that if allow your girls to use the cards and run up debt, you are liable. If you can’t pay, the credit issuer (or collection agency, if it goes that far) will only be able to sue you and not the authorized users. Do know that the cards you requested for your daughters don’t have to be used by them (or you) to generate a credit history.
In the event you choose to give your girls their authorized user cards (rather than stuffing them in a secret drawer), write up a list of rules. For example, if you give the girls access to the credit cards, maybe they are only allowed to use them for emergencies, or they have to gain your express permission before making any changes. Perhaps you want them to reimburse you what they spent with babysitting money or by doing extra chores around the home. Whatever you decide, review the rules with them and then monitor the account with special care so you can spot and deal with problems quickly.
You can remove authorized users from the account at any time. When you do, that account will no longer be on the girls’ reports. For that reason, you may want to wait until they are adults and have enough positive data on their reports to prove to other lenders that they’re a good credit risk.
Now a word about secured cards. They are indeed real credit cards and a terrific way for neophytes to get started with accounts in their names only. These products work the same as unsecured cards, but are guaranteed by a cash deposit, which makes them relatively easy to obtain. However, applicants must be able to enter into a legally binding contract, so to get them, the girls will have wait until their 18th birthday as well as show proof of income that can support the account’s credit line.
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