How to Help Your Child Establish Credit

Becoming an Authorized User

This can be an easy, low-risk way to build credit. You, the parent, add your child as an authorized user to your existing card account if your card allows (most do) and designate a separate, low credit limit for your son or daughter.

Your student benefits from your good credit score because the account’s usage information appears on both the primary and authorized user’s credit report. “This arrangement also promotes conversation about spending habits, because parents can easily monitor the card,” Detweiler says.

Students might qualify for their own card after six months of positive credit history, she adds, but if they’re under 21 they must be employed.

Getting a Secured Credit Card For Child Establish Credit

Typically, a secured card is available to anyone 18 or older and simply requires a small deposit of $500 or $1,000, which serves as the card’s spending limit. The deposit doesn’t pay the monthly bill — the user must make payments — but it secures the user’s credit and limits how much he or she can charge. When the account is closed, the deposit is returned.

“It’s like a credit card on training wheels,” says Laura Adams, a personal finance expert and host of the Money Girl Podcast. “It might be more beneficial than ‘authorized user status’ because it’s in the child’s name.”

Among secured cards, Credit.com recommends the Capital One Secured Mastercard. But you might want to check with your bank or credit card issuer to see if it has a secured card worth considering.

Getting a Regular Card in His or Her Name

This offers a powerful way to build credit. If your child has conscientious spending habits and experience handling a debit card or managing an allowance, an individual credit card with a low limit of, say, $500, can be a good idea

6 Tips for Smart Credit Management

• For secured or traditional cards, establish electronic notifications via smartphone apps or email regarding payments due and charges over a certain amount.
• Set up up online card payments to avoid missing a bill in the mail (especially if away at college) and pay the full bill if possible. For forgetful types, consider auto pay for minimum monthly amounts.
• Limit credit purchases to 20 to 30 percent of the card’s credit limit to avoid a high “debt usage” ratio, which compares the limit to the balance. A low debt usage ratio builds a good credit score.
• Shop for cards with no annual fee and a low interest rate rather than a rainbow of rewards.
• Don’t sign up for multiple cards (students can lose track of balances and payment dates).