We recommend products that we love. When you buy through links on our site, we may earn an affiliate commission.
If you’re looking to build credit for your child, you came to the right place.
There’s a lot of misinformation online about building credit. In this article, I’ll explain how to build your child’s credit, how to protect your child from credit identity theft, and I’ll cover common myths about this subject.
The main difficulty in building your child’s credit is that minors legally can’t get into debt. They usually don’t have income, either.
But there are two main methods for building your child’s credit that do work quite well.
1. Add Them as Credit Card Authorized Users
Credit card companies originally created authorized users so that spouses and adult children could use credit cards and build credit.
Now, any child with a Social Security number can become an authorized user on a credit card.
Every credit card company has their own rules, but this is widely available with most credit cards.
If you’ve read our other articles, you know the credit building formula that we teach. To build optimal credit, you need three revolving credit accounts and one installment loan.
So if you, as an adult, have credit cards in your own name, then you can add your children as authorized users to your own credit card.
This needs to be a card in your own name. If you are an authorized user for someone else, then that primary account holder will have to authorize your children.
Secured credit cards may not allow authorized users.
Keep in mind that if you want to build your children’s credit successfully, you need to manage your credit card responsibly.
This means that you should make your monthly payments on time, every time without fail. Every 30 day late payment will hurt your credit and the credit of your authorized users.
Another thing that we teach is that it’s important to keep your credit utilization to 10% or less of your credit limit.
As long as you keep your credit utilization low and make your monthly payments on time, this should help your children’s credit become established within as little as six months to one year.
Keep in mind that length of credit is an important credit scoring factor. That’s why it pays to add your children as authorized users as early as possible.
You don’t have to give them a copy of the credit card. In fact, you probably shouldn’t, particularly if they are not 12 years old yet.
Most credit card companies allow multiple authorized users per credit card. So even if you have six kids, you can add each child to each card and it will work just as well for the first as it will for the last.
Imagine if you add your children as authorized users to three of your credit cards when they are eight years old. If you manage the credit card wisely, by the time they are 18 they will have an established credit history of 10 years.
At that point, their credit should be good enough to buy their own home!
Of course, you have to have your own income to qualify for a mortgage, but you are still giving them a huge leg up on life just by giving authorized user tradelines.
My one word of warning here is to remember that mistakes and hardships you experience will be reflected on your child’s credit reports. So if you run up high credit card balances, that will hurt their credit utilization as well as yours.
If you default on a credit card or rack up late payments, that will hurt their credit tremendously. So make sure to be extra careful with the credit cards that your children are connected to, because your mistakes could hurt them financially.
2. Co-Sign on a Car Loan
When your children are old enough to drive, cosign on their first car loan.
My grandma did this for my mom and her siblings. It gave them a nice credit boost.
Many parents buy their children a car anyway. Why not put the loan in their name, cosign for it, and let their credit reap the benefits of your good choices?
To build top-tier credit, you need one installment loan. A car loan is a good example of this. So if you follow my advice in adding your children as authorized users to your credit cards and cosign on one car loan, your children will have built top-tier credit by the time they are 18 years old.
If you are looking to buy a car with all cash there’s a neat trick you can apply here. Get the car financed instead of paying cash.
Then, pay off 90% of the car loan one month into the loan. Keep making payments until the car is paid off. This won’t take very long.
In this way, you can avoid much of the interest charges from the loan and still get the benefits of having paid off a car loan for your credit.
A lot of people don’t know this, but credit utilization applies to installment loans. So by paying off 90% of the loan immediately, you are building a credit profile with low credit utilization. The paid off auto loan will remain on your child’s credit report for many years.
It will help them qualify for more financing when it comes time to get their own car loan years later or home loan. This paid off car loan will be on their credit report and will boost the credit score.
3. Protect Their Identity
Unfortunately, identity theft is common. Many times, a child’s Social Security number is stolen and sold to someone looking to build credit with an alternate identity.
These numbers are sold as credit profile numbers, (a.k.a. CPNs). They’re illegal to use, but the people buying them often don’t know that.
So how do you protect your child against this? Fortunately, the answer is simple. Freeze their credit reports.
After you add your children as authorized users, freeze their credit reports. After all, they won’t be needing them for a long time.
That makes it so that anyone who tries to use their name or Social Security number for financing or any credit related purpose will not be able to do so.
You’ll have to unfreeze their credit reports to use them again, but that’s simple. For example, if you want to add them as a cosigner on a car loan, simply unfreeze the credit reports right before you apply for financing.
After the new car loan reports its first payment on their credit reports, freeze their credit again.
You can freeze the credit reports by going directly to the credit bureaus’ own website and creating an account. It’s totally free, and anyone can do it.
Here are the links freezing credit with the main three credit bureaus:
Things That Don’t Work
In doing research for this article, I found that there are many misconceptions, mistakes, and outright lies regarding this subject.
First, credit builder loans are not available to minors. You have to be at least 18 years old to qualify and have a Social Security number.
I’ve spoken to other startup founders that are interested in rolling out credit building products for kids. But none of them are on the market yet, that I know of.
The same thing applies to debit cards that build credit. There are no debit cards for kids that help them build their credit. In fact, there are only two debit cards that build credit for adults on the entire market.
(Assuming that your kids have any bills in their name in the first place – I hope they don’t!)
Student credit cards and student loans cannot be issued until someone reaches 18 years of age. So even these products designed to help young people don’t apply to underage teenagers and children.
Authorized user credit card accounts and cosigning on car loans are the only two consistent methods that I found to help kids build credit.
I am a Certified Lending and Credit Specialist and first gained experience fixing my own credit. My own credit scores went from the 500s to the 800s in one year. I studied economics at The George Washington University and now have my own business working with financial technology companies. I manage my own investments and live in Salt Lake County, Utah with my wife and two kids.