9 Steps to Help Kids Establish Credit

Child putting change into a piggy bank

childhood savings There are too many stories floating around about foreclosures, excessive debt and financial failure. Adults who are struggling with finances now probably never received a proper education regarding financial responsibility and did not get help building the best credit possible.

It is never too early to teach your children the basics of money management. Before helping your children establish credit, you need to teach them what credit is and how it’s necessary to life. By taking the time to educate them about how money works you will feel much more comfortable when it comes time to actually helping them establish their credit. Helping your kids establish credit should include the following steps:

  • Open a savings and checking account in your child’s name Credit is built by proving a good history of financial responsibility with banking accounts especially a checking account. Kids should have the flexibility to spend and save their money as they choose, but should be fully educated on the penalties for overdrawing accounts, bouncing checks and making late bill payments they may be responsible for.
  • Tell them to get a job Once your child is old enough, they should be encouraged to work. By earning their own income, putting it into accounts and spending it, they will they learn the true value of a dollar. Additionally, when it comes time to applying for credit cards and student loans, income is always a factor lenders consider.
  • Use your home address on credit applications Going to college is an exciting time and many young adults rush into cutting the cord from their families. Using different addresses over the course of their college career can can make establishing credit hard because lenders like seeing stability in living arrangements. By using your home address is a much more favorable idea.
  • Put a utility account in their name Before your kid leaves the nest, put one of your major utility bills under their name. Whether it is electric, gas or phone, if the bill is in their name and no payments are late, it will help good credit base.
  • Have them apply for a store credit card Getting a JCPenny or Sears credit card has traditionally been the first step for teens who want to build credit. Your child’s favorite retailer may be more likely to give them a credit card than a national lender. If they use that credit card responsibly, the credit world will take notice.
  • Co-sign your child’s student loan If your child is off to school and has no credit history, co-sign a student loan with them. You will be giving them the opportunity to prove their financial worth to lenders as long as payments are made on time. Just make sure your child pays on time after they are done with school, since late payments will hurt your credit, too.
  • Get a secured credit card You can always get a credit card in your child’s name backed by secured assets. By using this card wisely, a more positive credit history can be built.
  • Check your local bank for more ideas If you have a great relationship and plenty of assets with your local bank, they can give you more ideas on how to best help your child understand personal finance and the world of credit.
  • Pull your child’s credit Once you’ve started establishing your child’s credit, walk through the process of pulling a credit report together. You can get a free trial membership from a credit monitoring service like GoFreeCredit.com and keep tabs on the progress of the credit-building process. This is a hands-on way for kids to see how managing credit responsibly will result in a higher credit score.

No matter what, do not put the cart before the horse. If your child hasn’t learned to handle their allowance, helping them establish credit will certainly be a fool’s errand and may cause substantial credit damage in the long run.


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