How to Start Building Credit for Your Child

Building a strong credit history is an important step toward financial independence. Establishing credit early can be beneficial for a child’s future, laying the groundwork for significant milestones such as securing housing, purchasing vehicles, or pursuing higher education. A solid credit foundation can open doors to favorable interest rates and better terms on loans, which can save substantial amounts of money over time. Understanding how to responsibly build credit from a young age empowers individuals with greater financial flexibility.

Adding Your Child as an Authorized User

Adding a child as an authorized user on an existing credit card account is a common strategy for building credit. An authorized user receives a card linked to the primary account holder’s credit line and can make purchases, though they are not legally responsible for the debt. This allows a child to benefit from the primary account holder’s established credit history, typically a parent or guardian.

To add an authorized user, the primary account holder contacts their credit card issuer and provides information such as the child’s name, date of birth, and Social Security Number. The primary account holder should possess a history of responsible payments and low credit utilization, as their financial behavior directly impacts the authorized user’s credit profile.

Not all credit card companies consistently report authorized user activity for minors to all three major credit bureaus, and the impact can vary. The authorized user’s credit file will reflect the account’s history. This approach emphasizes the primary account holder’s diligent financial management, as any late payments or high balances on the account could negatively affect the authorized user’s developing credit.

Secured Credit Cards and Credit Builder Loans

For young adults aged 18 or older, secured credit cards and credit builder loans offer alternative pathways to build credit independently or without authorized user access. These financial products are designed to help individuals establish a positive credit history when they have limited or no prior credit.

A secured credit card requires a security deposit, which becomes the card’s credit limit, typically $200 to $500. This deposit acts as collateral, reducing the risk for the lender. Responsible usage, such as making on-time payments and keeping balances low, is reported to credit bureaus. Choose a secured card with low annual fees that reports activity to all three major credit bureaus. Some secured cards also offer a path to “graduate” to an unsecured card after a period of responsible use, allowing the deposit to be returned.

Credit builder loans operate differently from traditional loans, as the loan amount is held in a savings account or CD by the lender. Borrowers make fixed monthly payments over 6 to 24 months, on amounts from $300 to $1,000. Once the loan is fully repaid, the borrower receives access to the held funds. These consistent, on-time payments are reported to credit bureaus. Eligibility for credit builder loans often considers factors such as banking history, employment information, and proof of income, rather than requiring an existing credit score.

Student Loans and Co-signing

Educational loans and co-signing for other types of debt can significantly influence a young person’s credit history. Understanding the nuances of these financial arrangements is important for both the borrower and any co-signer.

Federal student loans do not require a credit check for the student, as eligibility is based on financial need and enrollment status. These loans build credit once repayment starts and on-time payments are consistently made. The loan servicer reports payment activity to the credit bureaus, contributing to the student’s payment history. In contrast, private student loans are credit-based and often require a co-signer if the student has limited or no credit history. Both the student and the co-signer’s credit reports are affected by the loan’s repayment performance.

Co-signing for loans, such as auto loans or private student loans, means that both parties are equally responsible for the debt. The loan’s payment history, including both positive and negative activity, will appear on the credit reports of both the primary borrower and the co-signer. If the primary borrower misses payments, this negative activity impacts the co-signer’s credit score. The shared debt can also affect the co-signer’s debt-to-income ratio, potentially impacting their ability to secure other credit.

Monitoring and Safeguarding Your Child’s Credit

Regularly checking a child’s credit report ensures accuracy and detects unauthorized activity as credit activity begins. This helps protect against identity theft.

To obtain a child’s credit report, parents or guardians contact each of the three major credit bureaus—Equifax, Experian, and TransUnion—directly. Specific documentation is usually required, including:
A copy of the parent’s government-issued ID
Proof of address
The child’s birth certificate
The child’s Social Security card

When reviewing the report, parents should look for any unrecognized accounts, incorrect personal information, or suspicious inquiries that could indicate fraudulent activity.

If there is any suspicion of identity theft, parents can place a credit freeze on their child’s credit report. This restricts access to the report, making it harder for new accounts to be opened fraudulently. The process for freezing a minor’s credit differs from that for an adult and involves submitting a written request with supporting documentation to each credit bureau. A credit freeze for a minor remains in place until a parent requests its removal or the child reaches a certain age, such as 16 or 18, depending on the bureau’s policy.