How to build your child’s credit and why it’s so important

As an adult, you’ve likely learned the importance of building a healthy credit report and credit score. This gives you the flexibility to finance the vehicle you need to get to work and buy a home for your family. For young people, credit can be confusing and difficult to get because they often have no credit history and can’t get approved for traditional credit cards and loans. The latter becomes very important if they need private student loans to continue their education.

Fortunately, as a parent, you can give your child’s credit a bit of a jump start before they even turn 18. 👏 You can help them establish a solid credit history and credit score that’ll open up their financing options once they hit the minimum age requirement to get their own financing and credit cards. Plus, they can get a little financial education along the way. 

Continue reading to learn how to build your child’s credit, why it matters, how to access your child’s credit report, and more.

What is credit, and why is it important?

Credit can take on lots of definitions, but is similar to a financial report card. It takes into account many of your past and present financial liabilities, such as credit card debt, personal loans, car loans, home loans, lines of credit, and more. Your lenders or creditors will report all the information about your account to at least one of the three major credit bureaus, Equifax, Experian, and Transunion. Generally, though, they report to all three credit bureaus.

The information they report about your accounts may include:

• Current account balance

• All-time high balance

• Credit limit

• Interest rate

• Minimum monthly payment

• Repayment terms

• Payment history (on time or delinquent)

• Account status (paid in full, in good standing, closed, charged off, etc.)

• Year opened and closed

All this information is then pulled together and run through an algorithm to create a numerical score known as your credit score. There’s a wide range of credit scoring systems available, but the one most lenders use is your FICO score. The better you manage your finances by making on-time payments, keeping credit card debt low, and not taking out too many loans, the higher your credit score is likely to be.

So why is this all so important? Because to get credit, like an auto loan or home loan, you generally need good credit to start with. When you apply for a loan to buy your dream house or car, lenders will pull your credit score and credit report and review it against their standards for approval. If you don’t meet the bank’s minimum credit score or have other issues, such as monthly debt payments that are considered to be too high relative to your income, the lender may reject your loan application or give you a higher interest rate.

This is why it’s key to establish good credit. The biggest hurdle in establishing credit is you need credit to get credit, which is why it’s beneficial to know how to build your child’s credit so they can easily continue building it into adulthood.

Can my kid or teen have a credit report and credit score?

Absolutely, a child of any age can have a credit report. Of course, your kids can’t go out and sign up for credit cards and loans — so there are only two ways for them to have a credit report. The first is if their parent was proactive and helped them build credit from a young age. The second way is if an identity thief got ahold of their personal data and used it to open fraudulent accounts.

Let’s focus solely on the first scenario. As we mentioned, a child can’t open a credit account independently, but you may be wondering, “Can I add my child to my credit card?” Yes, a parent can add their child as an authorized user on a credit card, given the child meets the credit card issuer’s minimum requirements. Each credit card will have its own minimum requirements, and you can contact your credit card company to learn what these are. 

In some cases, adding a child as an authorized user will result in your credit card information, such as the balance, payment history, account status, and more, appearing on their credit report. This means that your positive card management can benefit them in the future — but any late payments or high debt utilization also could be reported negatively while they're an authorized user.

You may wonder if there’s a right age to add a child or teen to your credit card as an authorized user. In fact, you can add them at any age — though some creditors still have minimum age requirements — and at any time. For example, while you can’t open a credit card in a toddler’s name to build credit, you can add a toddler as an authorized user to achieve a similar result. 

Why would you add a child as an authorized user?

So we now know that you may be able to add a child to your credit card account as an authorized user, but why would you do that? As we mentioned, if your child meets your credit card issuer’s minimum requirements as an authorized user, the credit card info may get reported on their credit history. If the credit card account is in good standing, this could help your child start building credit and establish a good credit score.

You can also use the credit card as a teachable opportunity. Once the account is added to their credit report, you can request their credit report and teach them how to read a credit report and what makes reviewing a credit report so important. You can also show them how positive marks from on-time payments can help them build a solid financial base, which can someday open the door to more credit if they want to buy a home 🏠 or a car.

There are some caveats to adding your child to your credit card. First, not all credit card companies will allow you to add a child as an authorized user. Second, not all credit card companies report authorized users’ data to the credit bureaus. You’ll want to contact your credit card companies to find out which will allow your child as an authorized user and which report authorized user data to the credit bureaus. Some credit card companies start reporting data on your child’s credit report once they become an authorized user, but others may not report the data until they turn 18.

Another reason to add your child as an authorized user is they will become a cardholder and will likely get a credit card 💳 with their name on it. You can give them this first credit card to use in an emergency. Alternatively, you can also set a spending limit for your child and allow them to use the card up to that limit but require that they pay the bill in full every month through income from a job, if they’re working, or their allowance. Or you may also choose not to give them the credit card at all. It’s ultimately your decision. 

This will get them used to the credit card billing cycle and paying their balances in full each month to avoid interest charges. It may also help them grow their financial literacy by encouraging them to make sound financial decisions and helping them learn important money management skills, such as budgeting and good credit habits ⭐

Are there drawbacks to making your child an authorized user?

A lot of good can come from adding your child to an authorized user credit card, but some drawbacks exist, too. The biggest issue is that you’re liable for any charges they make on the account. While this may not become a problem, it is something to consider.

Another potential issue is if you hit a financial snag and max out your credit card or make late payments, your child’s credit could also take a negative hit because their name is on the account. It’s important to only add your child or teen as an authorized user if it will positively impact their credit score. 

Can a minor get a credit card on their own?

No, a minor cannot get a credit card. Even an 18-year-old cannot get a credit card independently unless they have a co-signer or can prove independent income (this can include a regular allowance). This rule is in effect until they turn 21 years old. Then, they can get their own credit card. But even for credit card applicants that are 21 or older, the credit card company still needs to consider your ability to pay and your total household income.

How can you access kids’ credit reports?

While kids and teens won’t have access to a credit score until they turn 18, they may have a credit report.

When you want to access your own credit report, it’s a fairly straightforward process through any of the three major credit bureaus or at AnnualCreditReport.com. Getting your child’s credit report is a different process, as you’re requesting access to someone else’s private financial information. 

While there are some extra hoops to jump through to get a child’s credit report, it’s worthwhile to teach them how to review their report, and you can also check for any inaccurate or potentially fraudulent information on their report. 

The process involves sending a request letter to each of the three credit bureaus and including the following information in the request:

• A copy of the child’s birth certificate

• A copy of the child’s Social Security card or documentation from the Social Security Administration showing the child’s Social Security number

• A copy of your driver’s license or state or federal-issued identification that includes your current address

In addition, if you are not the child’s parent, include a copy of a document that shows you are legally permitted to act on the child’s behalf.

You can then mail the request and documents to each of the three credit bureaus. Their addresses are as follows:

• Experian: P.O. Box 2002, Allen, TX 75013

• TransUnion: P.O. Box 2000, Chester, PA 19016

• Equifax Information Services LLC: P.O. Box 740241, Atlanta, GA 30374-0241

How to build your child’s credit for their financial future 

Building up your child’s credit by making them an authorized user on your credit card is a fantastic way to ensure they are on a solid financial path as they enter adulthood. Without this kind of head start, they may have to use other credit products like secured credit cards and credit-builder loans and work for several years before building good credit.

Now that you know how to build your child’s credit by adding them as an authorized user on your credit card account while they’re young, it will help them bypass these options as young adults.

Looking for family-friendly options to help your child get a strong start? 💪 Learn more about Greenlight today — the all-in-one banking* app for kids and teens, now with credit-building education 💳.

*Greenlight is a financial technology company, not a bank. The Greenlight app facilitates banking services through Community Federal Savings Bank (CFSB), Member FDIC.