MoneyLife

How Does Adding A Child to Credit Card To Build Credit Work?

By Grace Kilander

When you’re a parent, you want to make sure your children have the best opportunities that life has to offer. Before you know it, your kids become adults and your goal is that they are prepared for the world that awaits them. 

Sometimes, the financial learning curve is difficult for young adults on their own, including building and maintaining a healthy credit score. Why not make their journey easier by adding your child to your credit to build credit? Although that could be a useful tool, there are plenty of other ways to assist your children to create a solid credit score and mindset around money. Read on to find out more! 

Can you build your child’s credit before they’re 18?

Adding your child as an authorized user to a credit card could be a great move–or a risky one. If you fall behind on payments, your child’s credit could be shot before their credit journey even begins. 

Also, you might be skipping a right of passage into the world of life experiences and financial education. Instead of handing great credit over to them on a silver platter, start teaching them financial literacy at a young age–plus a little help from you.

7 Clever ways to help your child build credit

Use our top 7 tips to help your child develop a healthy relationship with money and maintaining a stable credit score.

1. Teach em’ young

Kids develop their habits and behaviors around money starting as early as 3 years old. Therefore, it’s never too early to include them in paying bills, depositing money, spending less, saving, and investing. 

2. Educate kids on cash vs credit

Break down the finances when purchasing the same items with borrowed money on a credit card versus paying cash. Explaining to them how easy it is to swipe cards instead of using money and how easily you can get caught up in debt.

3. Encourage saving

Use a clear jar to showcase the power of saving money. They’ll watch their money grow with excitement and pride! Additionally, open a minor’s savings account. Allow them to earn money for extra chores, tasks and have them regularly set 20% aside from their earnings to put into savings.

4. Create entrepreneurs

Before cellphones and social media, kids used to spend their free time playing outside and running lemonade stand businesses. Encourage your child to start their own (affordable and age-appropriate) side hustle. 

Help with their business plan and loan their business the startup funds. Charge them interest, set up a payment plan, and write out “paperwork” with them. This will help them understand the importance of healthy borrowing power, credit score, and debt repayment.

5. Secured card

A secure credit card is an alternative to a traditional credit card for someone who poor or no credit. Typically, young adults without credit history need to fork up a deposit equal to the secured credit card limit and borrow against their deposit. Your payment history is reported to the major credit bureaus and maintaining positive payments is crucial. 

6. Co-sign on a loan

At 18 years old (in some cases 16 or 17) getting a student loan or car loan is difficult without credit. Try asking someone you trust with good credit to be a cosigner. As long as they have a good credit score with solid credit history, your chances of approval with better interest rates are higher. This can sometimes be done with a mortgage on a home as well. 

7. Add child as authorized user

An authorized user is an individual who is added as an additional user on another person’s credit card. This method is often used to help the additional users improve their credit score or for underage children to have access to a card with funds on behalf of their parents. 

Depending on the credit card companies’ policies, they might be an age minimum to obtain a card or to receive credit reporting for the authorized user. 

Fraud protection for authorizers users

Typically, yes the same fraud protections apply to additional cardmembers, but credit card issuer policies may vary. Check with your credit card company first.

Credit reporting policies vary

Adding your child to a credit card doesn’t work for all issuers. For some issuers, they will discontinue reporting on authorized users credit report if the primary cardholder becomes delinquent.

Raise your credit within 60 days 

Helping your child look for an alternative to high-interest credit cards? A Credit Builder Loan offers competitive rates, affordable payments, credit reporting, and 0% APR cash advances – all without a hard credit pull!

Download the MoneyLion app and you could get up to $1000 today! 

Teach children financial confidence

All in all, including your kids in the family financial planning is their highway to success. But don’t let the education end there! 

Teach them about investing with as little as $10 using MoneyLion’s fully managed investment accounts. You can show them how a small amount of money can grow passively for only $1/month. Let us help you determine your investment strategy with a few questions or choose thematic investments that align with your family’s values– no minimums required! 

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