Have you ever wondered whether you can build credit for your child? By helping our kids establish a credit history and good habits early on, we can set them up for successful credit usage in the future. We’re not just talking about teaching them how to count change or fill up their piggy banks—this is about providing them with a robust credit profile before they even step into adulthood.
Establishing credit builds a financial path that makes adult life easier, and we want to help! We’ll give some credit-building tips to get you started as you prepare for your child’s future. You’ll soon discover five practical ways parents can help their children build credit now.
Understanding How Credit Works and Why It’s Important
Navigating the realm of credit may seem daunting, but it’s essential in guaranteeing your kid’s economic well-being. So, let’s start with the basics: What is good credit, and why is it important?
What Is Credit?
Credit is when you borrow money to pay for something with the understanding you will pay it back later. The borrowed money usually accrues interest. When you use a credit card, you promise the credit card company or bank that you will pay them back soon.
What Is a Good Credit Score?
Any score above 700 is considered an excellent credit score.
A credit score is a number that represents how likely someone is to pay off their bills when they are due. Credit scores range from 400 to 900. The higher the number, the better your creditworthiness appears to lenders and credit bureaus.
A lot hinges on having good or even excellent scores. Your score dictates whether you get approved for loans and their interest rates.
The Role of Timely Payments in Building Credit
Timely payments make up a significant 35% of your credit score. Paying your outstanding balance on time shows potential lenders that you are reliable when repaying borrowed money—a key factor they consider when deciding who gets approved for loans or leases.
No matter how you decide to build credit for your child, make sure to make each payment on time, or they won’t have a solid credit score.
5 Ways to Build Credit for Your Child
Helping your child build credit early in life can set them up for a more financially secure future. Here, we’ll explore five practical ways to give your kid a head start.
Most banks and credit card companies require someone to be 18 to get their own credit card. However, you can make your child an authorized user on your account before they turn 18. There isn’t usually a minimum age because you are still responsible for any bills.
This gives youngsters firsthand experience handling real-world finances before they reach adulthood. You can get them their own card and teach them how and when to use it responsibly. All transactions made with the account will be reported directly onto your child’s budding credit history.
2. Help Them Set Up a Secured Card
A secured card works like any other credit card but with one difference: It requires an initial deposit which then becomes a line of credit. This makes them perfect tools for teens or young adults building their credit.
Secured cards offer many benefits that establish credit while keeping risk low since a deposit backs its balance. Plus, as they age and demonstrate responsible debit card usage, it becomes easier to transition your child into unsecured credit cards.
3. Co-Sign on Loans and Leases
Your 10-year-old may not need help with loans, but your older children entering adulthood might. By co-signing loans or leases, you can help your child afford what would normally be out of their price range. Leases and loans are important for building a credit history. You will provide your young adult access to necessary financing opportunities and help them establish a credit profile.
Just remember, co-signing isn’t without risks. It means taking on responsibility if payments aren’t made on time because your own credit score will be impacted alongside your child’s.
4. Find Credit Card Options for Kids
Different types of credit cards are available for children that can help them start building credit in their early teens. Coach your child so they understand the credit process, and then help them start building credit young.
5. Help Them Get Student Cards
Student cards are another avenue worth considering to build your child’s credit history. They offer rewards like many credit cards, but these are more likely to appeal specifically to their needs as students. Maybe they’ll offer a discounted Amazon Prime membership or a discount to a bookstore.
The Benefits of Building Credit for Your Child
So, with some planning and intention, you can absolutely build credit for your child. But why go to the effort? There are some great reasons to help your kid’s credit rating.
1. It Inspires Responsible Money Habits from a Young Age
Research shows children start developing their behaviors around money as early as age three. It’s vital to teach kids about credit at an early stage.
Letting your child be involved with credit use and spending allows them to start building good habits while young. Doing so educates and helps lay down a foundation of sound personal finance management practices. Your child will be less likely to get caught in endless debt cycles because they know and understand the value of credit and money management.
2. It Helps with Future Loans, Rent, and Job Opportunities
Credit isn’t just about buying things; it reflects your financial responsibility. Establishing good credit at an early age can help with everything from getting a car loan to renting an apartment or landing certain jobs in the future.
As your child learns the importance of good credit, they will see the value of on-time payments. By showing your kid that timely rent or utility payments reflect positively on their report, you reinforce the idea that responsibility leads to trustworthiness among lenders.
4. It Educates Them So Future Loans Aren’t Intimidating
If college is around the corner for your youngster, student loans could become inevitable. While many fear debt, if your child has experience with credit, they will be better prepared to understand the terms of their loans and repayment schedule.
Power Finance Texas Can Help You Keep Good Credit
Teaching kids about credit might seem daunting, but starting early could set them up for success. Remember, it’s not just about getting a credit card in their hands; it’s more about teaching responsible use and the value of good money habits. As soon as they show interest or start asking questions, that’s your cue to kick off the conversation.
If you need money quickly to make a credit payment on time so your score stays high, it’s the perfect time to reach out to Power Finance Texas. We can get you up to $1,250 as quickly as today, so you can always make sure you have good and reputable credit. So don’t wait! Secure your child’s financial future, and contact us at Power Finance Texas today.