Can you boost your children’s credit score with a children’s credit card?

During the pandemic, families have had plenty of time and reason to review their finances. At Finder, we have seen increased interest in children’s banking products and more children’s banking products are becoming available, including children’s debit cards. However, when it comes to credit cards designed for children 18 and under, few if any products are hitting the market. This was true before and during the pandemic.

JESHOOTS-com/Pixabay – Valuewalk

Q4 2021 Hedge Fund Letters, Talks & More

For better or worse, excellent credit is hard to establish and easy to lose. According to recent data from Experian, the average credit score in the United States has increased over the past few years, although Millennials and Gen Z consumers have credit scores just between the high and the middle. 600s, which is classified as “good” credit. Goal.

Baby boomers, on the other hand, have an average credit score hovering around 730, which is “great.” There’s often a big difference in available credit products and borrowing options between good and great credit, so the sooner you start building your child’s credit, the better.

How do I start building my child’s credit without a children’s credit card?

Even without a children’s credit card in your wallet, you can still help build your child’s credit. You’ll want to do this as soon as possible because a good credit score goes a long way in setting them up for financial success. You have 2 main options for building up your child’s credit.

  1. Add your child as an authorized user on your credit card

There are no credit cards on the market designed for under 18s. However, many card providers do not have a minimum age requirement to add a child as an authorized user.

As an authorized user, your child can use your credit card freely, but the account holder (you) is responsible for paying the account balance.

Any credit activity performed on a shared account will affect both the primary account holder and the authorized user. This means that you can start building your child’s credit at a very young age, as long as you adopt good credit habits.

Be sure to choose a credit card that falls under the 3 major credit bureaus and the one that best suits your financial needs. For example, a balance transfer credit card can help you pay off interest-free debt while helping your child build credit.

  1. Ask your child to co-sign a loan

Asking your child to co-sign a loan works the same way as adding them as an authorized user on a credit card. They will reap the benefits of your on-time payments, although they don’t have the ability to “use” the loan unlike a credit card.

The school loan, car loan and personal loan are all popular choices to co-sign with your child thanks to their convenience. Also, having a combination of credit types on a credit account is more beneficial than just one type of credit.

Teach them financial literacy

As you build your child’s credit, teach them how credit cards work as well as healthy financial habits. Teaching your child a few basics can help them maintain their credit rating after opening their own account.

A good place to start is to demonstrate the differences between credit cards and debit cards. Sign up your child for their own debit card to help them understand the basics of banking. From there, you can explain how credit cards require repayment on time on a monthly basis. Once they’ve mastered the basics, move on to other credit card-specific information, such as credit reports, fees, credit limits, and rewards.

You have 2 goals in building your child’s credit. The first is to give them the financial knowledge they need to succeed into adulthood and beyond. The second is to give your child the excellent credit score he will need to choose among the best credit cards on the market.

Since some of these cards can generate hundreds or even thousands of dollars in value every year, it pays to prepare your child with excellent credit. This way they will have access to the best options available when they are ready for their first credit card.

Choosing your first children’s credit card

To help you and your child as much as possible on their credit journey, apply for a rewards or cash back credit card. Even if you don’t have the credit score of a premium card, a cash back credit card is an ideal credit card for kids because it naturally generates value during the credit creation process. credit.

If you’re worried that a rewards card will encourage you or your child to spend aggressively, an introductory 0% APR card is also a great choice. Depending on the type of intro APR, you can save interest on existing debts or make large purchases and pay them off interest-free during the promotional period.

Education is the path to financial success, today and tomorrow

The risky nature of borrowing on credit means that we probably won’t view children’s credit cards the same way we view children’s banking products.

However, given the importance of a good credit score for major purchases, helping your child build credit early should be a priority. This gives them a big head start once they’re ready to go on their own.

Article by Steven Dashiell

About the Author

Steven Dashiell is a writer at Finder specializing in all things credit card. Her expertise has been featured in numerous media including US News & World Report, Time, CBS, Fox Business, Lifehacker, Martha Stewart Living and many more.