How to Help Your High Schooler Build Credit
Helping your high schooler build and use credit is an important step for their financial future.
High schoolers with a credit history face fewer hurdles obtaining a major credit card that they can use for emergencies, travel or college expenses down the road. Building credit early in adulthood may also make it easier for your children to secure their first apartment or find competitive rates on private student loans, auto financing and even a mortgage.
Although the types of credit products your high schooler can obtain will depend on his or her age (and how involved you want to be in his or her credit), there are a number of ways to help your high schooler build credit. Here are a few ideas to help your kids establish the credit history — and good credit habits — that will benefit them in adulthood.
Consider Options Based on Your Child’s Age
There are great credit cards for students that offer low interest rates and the ability to earn rewards for purchases, but your high schooler must be least 18 years old before he or she can apply for a card of their own..
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Once They Reach Age 18
Assuming your high schooler is of age, you have several options to help them build credit:
- Help your child apply for a store credit card. Store credit cards may not require applicants to have as robust a credit history as many major credit card issuers, so they can be a good way for high schoolers to build credit in their own name and learn to use credit. Because store cards are not widely accepted and usually have low credit lines, they may allow you to maintain more control over how, and when, your child uses the card.
- Encourage your child to save for a secured credit card. Secured credit cards can be great credit cards for those who are new to credit to learn how to use their card responsibly and build a credit history. Although your high schooler will need to deposit a small sum of money to secure the credit line (which varies by creditor), there are plenty of good secured credit card options that report credit activity to the credit bureaus monthly and offer rewards. Once your high schooler proves a history of using their card responsibly and making timely payments, they may be offered the opportunity to graduate to an unsecured credit card (at which point the money deposited to secure the credit line may be returned).
- Another option for students who are 18 or above and attending college is to have them apply for a student credit card. Students that have a documentable assets or source of income may be eligible to apply for a student card. Some student credit cards offer great benefits, such as cash back rewards programs, no annual fee, and a low introductory APR. Student cards can be a great for teaching your child how to use their card responsibly all while building their credit history.
Before They Reach Age 18
If your high schooler isn’t yet 18 years old, you can help him or her build credit by adding them as an authorized user to one or more of your credit card accounts. (You can do the same for kids who are older.)
Although you, the primary cardholder, are held responsible for what’s charged to the card, your high schooler could build credit through association with your credit as an authorized user. That said, the Consumer Financial Protection Bureau (CFPB) warns that just as your positive credit use can benefit an authorized user’s credit history, the opposite is also true. If you make late payments on the account, and/or allow it to go into default or collections, those events reflect on your child’s credit history, as an authorized user.
Teach Credit Monitoring Habits
Once your child has either obtained his or her own credit card and/or become an authorized user on your card(s), pick a memorable date to remind yourself to pull your child’s free credit report(s) once a year from AnnualCreditReport.com.
In addition to reviewing the accuracy of personal information like your child’s name, social security number, address history and accounts on the report, teach your children about the items in the report that will help them build a positive credit history and credit score.
- Payment history. Stress the importance of paying at least the minimum amount due on credit card statements, and scheduling payments to arrive on or before the payment due date. Educate your high schooler that although payment mistakes may happen, late payments must still be paid, and a history of missed payments can significantly lower the credit score. As explained at Bankrate.com, the longer a payment is past due, the more it hurts your credit score. If possible, you may want to advise your high schooler to pay their full balance each month to potentially avoid interest on purchases.
- Amount of credit in use. Your high schooler’s credit report will indicate the monthly balance on his credit accounts, along with the credit limit. Though credit expert Evan Hendricks tells Bankrate that credit balances should not exceed 40% of the credit line, he says it’s better to use less — ideally, no more than 10% of the credit line. For a high schooler whose credit card will likely have a low credit limit, maintaining those ratios requires the discipline to think carefully about what they charge.
- Inquiries. When you apply for credit, lenders pull your credit report. This is called a “hard inquiry”, and it could lower your credit score. Soft inquiries do not impact your credit score. A “soft inquiry” happens when you check your credit report, or when a credit card company that wants to send you a pre-approved offer of credit checks your credit report. Teach your children to review this section of their report so they know who looks at their report — and to manage the amount of credit for which they apply.
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As your high schooler builds a credit history, he or she will likely receive offers to apply for more credit cards. Teach him or her to review each credit offer wisely before applying, so he or she doesn’t harm the credit history being built.