How to help build credit for your child

You can help your child build credit in a variety of ways. One is to add them as an authorized user on your credit card account, which can give them the chance to build credit with responsible use. 

And once they’re 18, you could help them apply for beginner credit cards like a student card or secured card. Co-signing on a loan with them might be another option. 

What you’ll learn:

• If you use credit responsibly, adding your child as an authorized user on your credit card account is one way to help them build credit. 

• Capital One reports the credit activity of authorized users to the credit bureaus. But if your issuer doesn’t do that or the card isn’t used responsibly, being an authorized user won’t help your child build credit.

• Once your child turns 21 (or 18 in some cases), they could start building credit with a secured card or a student card. 

• The Consumer Financial Protection Bureau (CFPB) suggests checking your child’s credit reports to spot errors and signs of identity theft.

Options for helping your child build credit may be limited until they’re 18 years old. Even so, here are ways to help them build credit that might be most beneficial in their early years.

Your child could start building credit if they become an authorized user on your credit card account. While authorized users may get their own credit card and can typically make purchases using the account, the primary account holder is responsible for making payments. Irresponsible management of the account could end up hurting your child’s credit scores as well as your own.

Credit card issuers aren’t required to report an authorized user’s activity to the three major credit bureaus. Capital One does, but there’s no guarantee that another card issuer will. If they do, the account will appear on the authorized user’s credit report and will impact their credit. If the information isn’t reported, it can’t affect an authorized user’s credit at all.

Opening an account like a Capital One Kids Savings Account could help them set savings goals and learn to make deposits. Young adults might benefit from the extra independence and experience offered by a Capital One teen checking account. 

While having a bank account won’t directly impact your child’s credit scores, it could help them start to learn about financial responsibility.

Credit bureaus typically don’t generate credit reports for minors, but your child could have a credit profile if: 

• They’re an authorized user on someone else’s credit card account

• They’ve been a victim of identity theft

• A credit bureau confused them with someone who has a similar name

Even if you’re pretty sure your minor child has no credit history, the CFPB suggests you check. That way, you can be more confident about your child starting out with clean credit reports. You can get free copies of your child’s credit reports from each of the three major credit bureaus at AnnualCreditReport.com.

Here are ways to help your child build credit that might make the most sense once they’re a young adult.

In the U.S., you have to be at least 18 to open your own credit card account. And federal law places additional requirements on applicants under the age of 21. 

With that in mind, here are options for helping your child build credit once they’re 18 years old.

• Secured credit card: These cards typically require a one-time refundable security deposit, which can make them easier to get. A secured card could help your child build credit if they use the card responsibly by doing things like making on-time payments.

• Student credit card: A student card, which is similar to a traditional credit card, could also help your child build credit with responsible use. To qualify for a student card, they typically must be at least 18 years old and enrolled in a qualifying school.

Becoming a co-signer for your child could help them get approved for credit cards or loans. And that can be one way for them to start building credit. 

Keep in mind that as a co-signer, you’ll share responsibility for the debt. If your child doesn’t make the payments on time, your credit scores could be negatively impacted, not just theirs. 

It may also help to know that most major credit card issuers don’t allow co-signers. But your child’s 18th birthday might offer a chance to talk seriously about what it could mean to have their own card in the future.

Credit-builder loans, which are installment loans generally between $300 and$1,000, are specifically designed to help people build credit. With this type of loan, the lender deposits the loan amount into a savings account or certificate of deposit (CD) that’s held as collateral. The borrower gains access to the funds after the loan has been repaid. 

Because lenders typically report a borrower’s payment activity to the credit bureaus, this loan could help build both your child’s savings and credit history.

Once your child is 18 years old and has started to establish credit, they can monitor their credit for themselves with CreditWise from Capital One. With CreditWise, they can access their credit report and credit score for free, without hurting their credit scores.

Here are some best practices to consider whatever your child’s age.

Teaching your child about money could help prepare them when it’s time to put good financial habits into action. Here are possible teaching opportunities based on age:

• Young children: You could start by teaching them how to save money and why it matters. You might also pay them a regular allowance to demonstrate how money is earned.

• Middle school-aged children: Once they’re in middle school, you could explain the basics of credit and why having good credit scores matters. You could also review the importance of budgeting for both essential and fun expenditures. 

• High school-aged children: If you have a high schooler, you can help them understand how a credit card works and how to use it responsibly. If they’re looking into big-ticket items like electronics that require a loan, you could use this opportunity to teach them how interest rates work and the importance of savings.

Demonstrating to your child how you manage your money can make financial lessons relatable and relevant to their everyday lives. For example, you could show them how you’re:

• Using a budget to get a clearer picture of where your money goes each month 

• Tracking your spending to help stay on budget

• Taking steps to accomplish a financial goal

• Investing money to build wealth for the future

As a parent, you can help your child establish and build credit in lots of ways. Adding them as an authorized user on your credit card account could be one way. Helping them monitor their credit might be another.

Once they turn 18 or 21, they’ll typically have other options like a secured credit card or a student credit card.