3 Ways to Help Your Children Build Credit

Building healthy credit is not an overnight process. It takes some time and requires a certain amount of patience from borrowers. But this process can be difficult for teenagers who have just received their first credit card and have no prior financial history to their name. Without proper credit history, teenagers will have trouble applying for auto loans, insurance and even student loans when the time comes. If you are a parent and your child is looking to forge their own financial identity, you can lend them a hand in building credit. Here are a few ways to help your teenagers build healthy credit:

Teaching the importance of credit
While helping your children establish credit, it is also important to teach them about the significance of this process. Starting a good credit history will assist them in maintaining good finances and getting a good credit score.

This three-digit numerical expression is an overview of the state of your children's responsibility with their credit. The higher the score, the more they will be trusted by financial institutions. Lenders and insurance agents will look at a credit score in order to determine whether they will issue a loan to someone. A credit score can be negatively affected by missing credit card payments or using up a good portion of a credit limit. By teaching your kids the value of a credit score, you will be able to send them down the right path.

Authorized user
You may not fully be comfortable with imparting an independent bank account to your child right away. If they are not aware of good money-managing habits, they could use up all their savings and cause their credit score to drop. To prevent this from happening, consider setting them up as an authorized user under your account.

Under this situation, your youngster will be able to use your credit account, which will help them establish credit in their name. Also, when you use your credit card to make a purchase, you will help your teenager improve their score. This option can help them build up their own credit, but it is also an opportunity to impart wise money-managing tips to them. If your kids abuse this privilege, they could use up your limit and cause your own credit score to drop.

Secured card
Once you feel that your kids can handle their own finances, they may be ready for a credit card. Getting them a card with a large limit may be a bit extreme, but there are many options available with smaller limits.

One option to consider is getting them a secured card, which only allows them to spend what they put on the card. For instance, if they are buying lunch for themselves that costs $10, they will need to put $10 on this card in order for the transaction to go through. This type of card teaches them the value of credit and can protect them from overspending.