Give the gift of credit card know-how this holiday

Question for the expert

Dear Opening Credits,
I would like to get my children their own credit cards to help them build their credit. I would like to do this as a Christmas gift. Their ages are 19, 20 and 23. One of them has excellent credit, and the other two have no credit history. Can I do this? I would be willing to do a secured card for them. -- Credit Concerned Parent

Answer for the expert

Dear CCP,
What a wonderful holiday gift! Unfortunately, credit is the kind of thing that can't be given. It has to be earned.

Whether your children have credit histories or not, they can absolutely build good credit on their own. That said, you can give a helping hand.

The best gift you can give your children is an education in credit, and is a terrific place to start.

Teach your children how to handle credit wisely. Explain what interest rates mean and how they work. Use our calculators to demonstrate how interest charges can build and add to debt. Show them copies of your credit card statements and all the moving parts. Then they'll know what to expect when they start receiving statements of their own.

Next, show them why paying on time, even if it's only the minimum payment, is the best move for a person's credit score. If you have a copy of your own credit report, show your children what on-time payments look like and explain what a credit score is. even has an interactive credit report that walks you through everything that appears on a report. Show them this so they'll have a good foundation before they charge a dime.

Once they're armed with information, it's time to shop for a card.

Even with no credit history or employment and despite the current credit crunch, your children can probably get their own credit cards. You can help by directing them to some cards that are good for first-time borrowers.  

The quickest way to get them a credit card is through a technique called "piggybacking." It works this way: Someone with good credit makes someone with bad credit or little to no credit an authorized user on their credit card. Then, regardless of whether the newly authorized user ever uses the account, the positive history of that credit card account is reflected on their credit report, thus boosting their score and making it easier for them to get their own credit in the future. It's most often used by parents, like yourself, who are trying to give their kids a good start with credit. The risk here is that if one of your children makes a credit mistake, you could be on the hook for the cash -- and it could negatively impact your credit score.

You could also consider co-signing. Co-signing means you're promising that you'll pay the credit card bills if for any reason your child fails to. However, as with piggybacking, you're at risk if your co-signer makes mistakes.

If a secured card for each of your children is still at the top of your holiday shopping list, go ahead. A secured card would give your children a credit limit equal to the amount they -- or you -- deposit in an account with the lender. Lenders who might not otherwise be willing to lend to your child would already have money in the bank, so there's no risk to the lender.

You can gift your children whatever amount is required for the deposit on the card. For example, if you'd like them each to have a secured card with a $200 limit, you can give them the $200. For a $500 limit, gift them each $500.

Hope you get something nice in your stocking this holiday season for being such a thoughtful parent!

See related: Credit card calculators, Interactive credit report, Piggybacking: When should the free ride end?, Piggybacking gets clemency from FICO, Know your credit card personality  

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Updated: 03-21-2019