How to Build Credit History for Your Child

Understanding Credit for Minors

Credit history is a record of how an individual manages debt, including account details, duration, amounts owed, and payment timeliness. A positive credit history is important for adult financial activities like securing loans, renting, and employment, indicating financial reliability.

Individuals must be at least 18 to enter contracts, including opening credit accounts. Therefore, minors cannot directly apply for their own credit cards or loans. Despite this, building a credit history for a minor is possible to establish a verifiable record of responsible financial behavior that benefits them in adulthood.

Establishing credit for a minor typically involves associating them with an adult’s existing credit account. This allows the minor to indirectly benefit from the primary account holder’s good financial standing, creating a positive entry on their credit file without legal debt responsibility. This early start prepares them for future financial endeavors.

Leveraging Authorized User Status

Becoming an authorized user on a parent’s credit card is a common way to help a child establish credit. An authorized user receives a card linked to the primary account, allowing purchases. The primary cardholder remains responsible for all charges and timely payments, and the account’s positive payment history can be reported to the authorized user’s credit file.

To add a child as an authorized user, credit card companies require specific personal information, including the child’s full name, date of birth, and Social Security Number. Some card issuers have no minimum age requirement for authorized users, while others may require the child to be at least 13 or 15 years old.

Parents can add authorized users by logging into their online banking portal, calling customer service, or submitting a form. After approval, a card in the child’s name may be issued, and account activity can begin to be reported to credit bureaus, contributing to the child’s credit profile.

Alternative Early Credit-Building Strategies

Other strategies can contribute to building credit history, particularly for young adults aged 18 and older. One option is a secured credit card, which requires a cash deposit that serves as the credit limit, minimizing risk for the issuer.

Secured credit cards function similarly to traditional credit cards, allowing users to make purchases and build a payment history. The deposit acts as collateral, making these cards accessible to individuals with limited or no credit history. Responsible use, including on-time payments, can eventually lead to graduating to an unsecured card and having the deposit returned.

Another strategy is a credit-builder loan. Unlike traditional loans where funds are received upfront, a credit-builder loan involves the lender placing the loan amount into a locked savings account or certificate of deposit (CD). The borrower then makes regular monthly payments over a set term to repay the loan with interest.

Each on-time payment is reported to the major credit bureaus, helping to establish a positive payment history. Once the loan is fully repaid, the funds held in the savings account or CD are released to the borrower. This method helps build both credit and savings simultaneously.

Federal student loans can also play a role in credit building for older teens pursuing higher education. While most federal student loans do not require a credit check for eligibility, responsible repayment after graduation or during deferment periods contributes to an individual’s credit history. Consistent, on-time payments made on these loans are reported to credit bureaus, adding to the borrower’s financial record.

Monitoring Credit Progress

After initiating steps to build credit, it is important to monitor progress by reviewing credit reports. A credit report compiles an individual’s credit activity and financial standing. Monitoring these reports helps ensure accuracy and allows for observation of credit-building efforts. The three major nationwide credit bureaus are Equifax, Experian, and TransUnion.

Individuals are entitled to a free copy of their credit report from each of these three bureaus once every 12 months via AnnualCreditReport.com. While a child’s credit report may not exist or be accessible until they are 18 or have an active account reporting, parents can request a report for a minor if credit activity is suspected or initiated.

When reviewing a credit report, check for accuracy in personal information. Focus on the credit accounts section, verifying that all listed accounts belong to the individual and that payment histories, credit limits, and balances are correctly reported. Identify any unexpected or incorrect entries. While a credit score is derived from the report, the primary focus during monitoring should be on the accuracy and completeness of the underlying data.