How to help your teenager establish credit
With the right guidance, teenagers can develop a strong financial foundation that can help them establish credit.
You’ve worked hard to create a loving family environment and to share important life lessons with your kids. And learning how to manage money and credit can be part of those lessons. The Federal Trade Commission says kids who understand money better tend to have better credit scores as adults.
The knowledge you share with your kids might help them get a head start on building credit. That could make it easier for them to qualify for a credit account or rent an apartment on their own when they’re older. Read on for some ideas on how you can help your teenager learn about and start their credit journey.
1. Educate your teenager on the basics of credit
You know your teen best. So you can decide which money topics will be appropriate for them based on their age, interests and development. But here are some ideas:
- The potential benefits of having a good credit score for everything from getting a phone plan to being approved for a credit card.
- The importance of using credit responsibly.
- The differences between credit cards and debit cards.
- The benefits of creating a budget.
- The importance of keeping personal information private and secure.
2. Check their credit reports
Be sure your teen is starting with a clean slate by checking their credit reports. Even if your teen can’t get credit on their own, there are still ways they could already have a credit report, including by error or because of identity theft. And that could lead to headaches once it’s time for your teen to open accounts of their own.
You can contact the three main credit bureaus—Equifax®, Experian® and TransUnion®—to check your child’s credit and dispute any errors. And according to Experian, they can check themselves once they turn 14.
3. Open checking and savings accounts in your teen’s name
Some people keep their spending money in a checking account and short-term savings in a savings account. Learning how to use and manage both accounts might teach your teens skills that could apply to managing a credit card.
Once you think they’re ready, you may be able to open a bank account for your teen. As the joint owner, you can help monitor and manage the account. But you can make sure they’re able to have some control and get practice as well.
The Capital One MONEY teen checking account is an option for parents or legal guardians and a child who is at least eight years old. The account comes with a debit card that they can use, and there are no minimums or fees. It also includes tech tools to encourage them to start budgeting and setting goals—and to give parents access and oversight.
If you have younger children, you don’t need to wait. You can start them with a Capital One Kids Savings Account and then move them to the teen checking account later.
4. Add your teen as an authorized user
You may be able to help your teen build their credit before they’re 18 by adding them as an authorized user on your credit cards. That’s if the card issuer reports information to the credit bureaus and the credit bureaus include that information on credit reports. If information doesn’t appear in a credit report, it may not affect an authorized user’s credit or credit score at all.
Responsible use could help your teen establish and build their credit history and contribute positively to yours. Negative actions, like missed payments, could hurt both of you.
When you add a teen as an authorized user on your Capital One card, you can track their spending and receive real-time alerts with the Capital One mobile app.* Removing an authorized user is just as easy.
5. Research opening student or secured cards
If you think your teen is ready to use credit, there are some options you can both consider. Kids typically have to be at least 18 years old to open a credit card in their own name. If they’re under 21, they’ll also have to prove they can independently make the minimum payments on the account. If they can’t, they may need a co-signer, guarantor or joint applicant who is at least 21 and has the ability to make required minimum payments on the account.
Many teens start with a student credit card. A secured credit card could also be a good option.
6. Lead by example
Teens can learn a lot from watching how you manage your finances and credit. You might want to make a point of sharing why you’re considering using one credit card over another. Or show your teen what a credit card bill looks like and how the payment impacts your household’s finances.
You can also share stories of mistakes you or your friends made during your teens and what you learned. It might not stop them from making their own mistakes. But hopefully, they won’t repeat the same ones, and it might help them feel comfortable coming to you for advice.
Discuss the benefits of good credit
Credit can seem abstract for teens when they can’t get accounts of their own. But it might help if you can share the importance of credit to your teen’s specific goals. Perhaps your teen would like to buy a car. In this case, you can explain how good credit can help you qualify for a car loan.
It’s one thing to build and establish credit, but remember to emphasize to your teen that that’s only the first step. Maintaining good credit requires responsibly managing credit cards and other financial accounts. It can take time, and it’s an ongoing process. But learning early might help them reach so many future milestones.
*Web access is needed to use the mobile app. Check with your service provider for details on specific fees and charges.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
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