Tips For Helping Teenagers and College Students To Build Credit

There is one thing parents can begin to consider for their teenage children and that is their teenage children’s credit. Parents can help pave the way towards a bright financial future for their teenage child. In fact credit reports are not based on age so credit reports can be generated at any age. A credit history is vital when your child reaches adulthood. Even more importantly is teaching your child how to use credit responsibly.

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How can you prepare your child’s financial future? You can start by adding them as an authorized user. This means the child will have privileges with your credit card but will not be responsible for the credit card debt. This route will only teach your child about how to use a credit card, with your guidance of course. If you want your child to have a credit report and a credit score the best way to do it is to open up 2 or 3 small balance credit cards, say a balance limit of $500. You then add them as a joint user to the account. Once you add them as a joint user a credit report is automatically generated in their name. For your peace of mind you can always only allow your child to hold one credit card at a time and alternate them out to avoid any credit mishaps where your child goes buck wild on a spending spree. If you do go the joint user route understand it is risky as you are responsable for any mistakes your child makes.

If you do go this route you will need to be very clear with your minor child on how and when to use the credit card. Setting up crystal clear expectations and boundaries is a good way to start teaching your child about credit and how to use credit cards responsibly. It could be rather disastrous if you do not set these boundaries.

You will need to teach your child the basics of credit cards, such as how a revolving balance is a bad thing. The child needs to fully understand how the credit card work, what fees are involved and when these fees are triggered. Your child should be taught that credit card balances should be repaid as quickly as possible and also the concept of a billing cycle and the grace period, as teaching your child this successfully will teach them how to get an interest free loan in effect.

There are also options for your teenage child to apply for credit in their own name. One such option is retail credit cards which require little to no credit to apply for. It would ideally help if the child has been a joint account holder for 6 months or more to qualify for a retail credit card however. These accounts tend to have low credit limits from $300 to $500 but the downside of course is these cards interest rates tend to be high, so parental guidance will be necessary here.

Another option for your minor child is to have them open a credit card with the bank or credit union that they have a checking account or savings account with. It would be best for you to go with your child in person while applying for this. Another option is a secured credit card in your child’s name alone. They work like regular credit cards with the exception that the credit limit is secured by a deposit withheld by the bank or credit card issuer. There are a few that allow a minimum of only $200 which will allow your child to start building their credit now.