How to establish and build credit for a family member

Everyone wants the best for their kids. A healthy and successful future, with the house, car, job and vacations of their dreams. But as a parent, how can you help? 

You could support them in establishing a good relationship with credit. That can come in handy for everything from getting their first credit card to taking out a mortgage. So why not get them started? Read on for some ideas you can consider, whatever age they are now.

According to the Organization for Economic Co-operation and Development, kids who have hands-on experience with managing money often understand it better. And the Federal Trade Commission (FTC) says kids who understand money better tend to have better credit scores as adults. Here are some ways you can help lay the groundwork:

Even if you’re pretty sure your child has no credit history, the Consumer Financial Protection Bureau (CFPB) suggests you check. That way, you can be more confident about your child starting out with a clean credit report. The CFPB has guidelines on how to contact the credit bureaus.

Check any credit reports you find. You can dispute errors in the personal information section of the reports and report any signs of identity theft, like open accounts you don’t recognize.

You can give your child hands-on experience by opening a savings account in both your names. The Capital One Kids Savings Account can help them practice setting goals and making deposits. And it offers a high-interest rate with no fees or minimums required and parental oversight.

Once they’re ready, your young adult might benefit from the extra independence and experience a teen account could offer. The Capital One MONEY teen checking account, for example, comes with a debit card so that kids ages eight to 18 can practice things like withdrawing cash from an ATM and making purchases online. It also includes tech tools to encourage them to start budgeting and setting goals—and to give parents access and oversight.

Depending on when you first look at your child’s credit reports, you might want to do it again before they move on to opening their first line of credit. The FTC suggests closely checking kids’ credit reports at age 16. This can give you time to correct errors and increase their chances of approval for things like loans and credit cards. It could also help if they’re applying for a job, because some companies check credit as part of the hiring process. 

If you think your teen is ready to use credit, here are some options you can both consider. Keep in mind that responsible use of credit, not just having a credit account, is what can help your child build their credit history and scores.

Becoming an authorized user gives your child their own card and permission to make purchases on your line of credit. And if your issuer reports authorized users to the credit bureaus and the credit bureaus put that information in their report, it could help your child build their credit. 

Before you add your child as an authorized user, it’s worth checking for age restrictions—some issuers may have a minimum age requirement. 

Once your child turns 18, they might find more ways to start building credit. Note that for some of the following options, you might need to act as a co-signer until your child is 21 or can prove their independent ability to make payments on the account.

• Get a secured credit card. A secured card gets its name from the security deposit you need to put down after you get approved. Once you have a card, you can use it to make purchases just as you would with a traditional card. As you make on-time payments, you start to build a positive credit history. Some secured cards also offer a path to a traditional credit card if you make consistent on-time payments. 
• Get a student credit card. Student credit cards can come with educational resources and features that can help young people learn responsible ways to use credit. They often function pretty much the same as a traditional credit card does. Some even offer cash-back rewards.

• Get a credit-builder loan. Credit unions may offer these small loans, which are deposited into a locked savings account by the lender. You make small payments over a fixed period to pay the loan back. And once it’s paid off, you get access to the money.
• Get a retail credit card. A retail store credit card could help your child build credit. But its use might be restricted to the store or group of stores that issued them. You can learn more by reading the card’s terms and conditions.

In theory, you can start building credit at any age. But to build credit, you need access to credit. And the options can be limited if you’re under 18.

It’s possible to start building credit early as an authorized user of a parent’s account. But remember, this depends on the policies of your credit card issuer and the credit bureaus.

There’s no need to feel like anyone’s falling behind, though. The CFPB says most people don’t have a credit record before they turn 18. Yet more than 90% of people have established one by their mid-to-late 20s.

As the CFPB says, no one is born with a credit record. They’re not established at any particular age, either. But there are a few ways that a minor—generally a child under 18—could have a credit profile:

• They’re an authorized user on someone’s account, and the credit bureaus are reporting on the account.
• They’re a victim of identity theft.
• A credit bureau confused them with someone who has a similar name.

So while the credit bureaus typically don’t generate credit reports for minors, it’s still possible that your child could have one. And remember: The CFPB has guidelines on how to contact the credit bureaus to check.

So now you know some ways you can help your child start their credit journey. But remember, having access to credit won’t automatically help them build good credit. Instead, what’s important is how they manage the credit. You can help them by sharing your knowledge and good habits. And, when they’re ready for that all-important first credit card of their own, you can encourage them to use it responsibly.