The Gift of Freedom: The Comprehensive Guide To Establishing Your Child’s Credit

What is the mark of becoming an adult?

Is it your 18th birthday?

Your first car?

Your first apartment?

College graduation?

Your first house?

Technically, adulthood begins when a child turns 18, but since most are still in high school, I wouldn’t consider that the defining moment.

I’ll cut to the chase here and tell you that I believe adulthood begins when a child begins moving away from the parents, in the sense they they are financially, emotionally, and physically independent of them – with an emphasis on making their own money and decisions with how to utilize that money.

You might disagree with me, and that’s ok because it’s entirely my opinion.

But I shared this with you to give you an idea of just how important the concept of establishing your child’s credit is to me.  My parents, although they taught me lots of solid financial principles, did nothing to help me build my credit.

By contrast, my husband parents did some amazing things right with his credit since he was very young, that we didn’t even find out about until after we were married.

I am incredibly grateful for this, and what they did taught me some amazing lessons about what we want to do to help our daughter establish credit before she’s even old enough to know what credit is.

So today I’m sharing those strategies with you.

These 4 strategies will help you to:

  • Establish your child’s credit from the time they’re very young
  • Gradually teach them to use credit responsibly as they get older
  • Wean them off of your credit cards and onto their own by the time they leave the house

Add Him As An Authorized User On Your Credit Card

From the day your child is born, one of the best things you can do to establish credit is to add him as an authorized user on your credit card.

What this means is that he’ll get a credit card in his own name, but under your account, so you’ll be responsible for the payments.  Now obviously, a month-old baby can’t use a credit card, so putting a couple tanks of gas on the card each month should be sufficient activity to start building the “Length of Credit History” portion of his credit score.

As he gets older, I recommend continuing the 2-purchase per month habit, but considering your teen make the two purchases either for you, or for himself, and then paying for them.  Then, if he is not responsible, or you don’t feel he’s ready you are under no obligation to give him the card. You’ll be able to see every transaction he makes, and if worse comes to worse, you can remove him as an authorized user.

Instead, keep it locked away, slowly and steadily building his credit for a day when he’s ready to use it.

This is the easiest way to establish your child’s credit without leaving much room for irresponsible spending.  Just like my husband’s parents added him as an authorized user to their credit card when he was 6 months old, we added our daughter as an authorized user on our credit credit card.

Helping your child establish credit may seem like a risky proposition, but with these 4 strategies, you can start building your child's credit long before they know what credit it - with almost no cost to you.

Help Him Open A Secured Card

A Secured Card is a great option as your child gets older, opens their first checking account, and has a job.  Typically, these credit cards are issued with a very low credit limit, which is fully secured by an amount of money deposited in the bank.

So, if for example you deposit $500 in the bank, then the limit on the credit card will be $500.

You will have to watch out for secured cards with high fees, expensive penalties, and and high interest rates, so look for one with no annual fee, limited penalties, and a reasonable interest rate, such as the USAA Secured American Express.  This card has:

  • A $35 Annual Fee
  • APR as low as 10.15%
  • No Penalty APR
  • $250 – $5,000 credit limit, depending on the deposit you make
  • Find out more

Co-Sign For His Credit Card When He Gets a Job

Once your child turns 18 and has a steady job, if you feel comfortable enough with his financial responsibility, another great way to help him establish credit is to co-sign for a credit card with him.

New laws have made it very difficult for those under 21 to obtain credit cards (even though they’re legally adults), so if your child is trying to live independently but can’t, this can really help him.

However, you do need to be aware that with a co-signed credit card, unlike an Authorized User, you will be responsible for making payments if your child doesn’t.  So needless to say, you need to protect your own credit by making sure that your (adult) child has sufficient income, and is going to pay the card in full every single month – or you’ll have to.

You will have almost no control.

But, I have to say that if you’ve done most things right up to that point – teaching your child about money, helping them to make good decisions – this shouldn’t be a problem, and will actually be a really big help to him.

Teach Responsible Credit Card Use

As with all things, responsible credit card use is essential.

When adding your child as an authorized user, it is essential that first you, and then your child practices responsible spending since you’re on the hook for the full balance, and his credit score hangs on your decisions.

With a secured credit card, irresponsible credit card use means sacrificing the deposit you (or your child) put down – and ultimately negatively affecting their credit score.

And when co-signing your child’s credit card, your credit card (and budget) will hinge on their responsible credit card use.

These strategies are tried and true, backed by financial experts, and if you – like me – want your child to have the ability to purchase a home while they young, start investing in real estate, and be able to take advantage of low interest rates, etc, then you’ll need to get started early to make their credit capable of everything they aspire to be.

Are you building your child’s credit?  Share your thoughts in the comments!

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This post may contain affiliate links.  See my disclosures for more information.

Helping your child establish credit may seem like a risky proposition, but with these 4 strategies, you can start building your child's credit long before they know what credit it - with almost no cost to you.

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  1. This is an interesting concept, one that I hadn’t heard of. I don’t really think that it is the parents responsibility or that the parents should gift their children by establishing credit for them. I do think that it is the parents responsibility to teach financial literacy to their children, however. There is something to be said for working for what you have and not having it handed to you – but that is just my thoughts. Interesting topic, thanks for sharing!