Over the course of the pandemic, families had ample time and reason to review their finances. At Finder we’ve observed an increased interest in kids banking products and more kids banking products becoming available – including kids debit cards. However, when it comes to credit cards designed for kids 18 and under, few if any products hit the market. This was true before and during the pandemic.
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For better or worse, an excellent credit score is difficult to build and easy to lose. According to recent Experian data, the average US credit score has been on the rise over the last few years, though millennials and generation Z consumers have credit scores just in the high- to mid-600s, which is classified as a “good” credit score.
Baby boomers, on the other hand, have an average credit score hovering around the 730s, which is “excellent”. There’s often a stark difference in the available credit products and borrowing opportunities between good and excellent credit, so the earlier you start building your child’s credit, the better.
How Can I Start Building My Child’s Credit Without A Kids Credit Card?
Even without a kids credit card in your wallet, you can still help build your child’s credit. You’ll want to do this as soon as possible as a good credit score goes a long way toward setting them up for financial success. You have 2 main options for building up your kid’s credit.
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Add Your Child As An Authorized User On Your Credit Card
There are no credit cards on the market designed for those under the age of 18. However, many card providers have no minimum age requirement for adding a child as an authorized user.
As an authorized user, your child can use your credit card freely, but the account holder (you) is responsible for paying the account balance.
All credit activity performed on a shared account will reflect on both the main account holder and the authorized user. This means you can start building your child’s credit at a very young age, so long as you practice good credit habits.
Be sure to choose a credit card that reports to all 3 major credit bureaus, and one that best fits your financial needs. For example, a balance transfer credit card can help you pay off debt interest-free while you help your kid build credit.
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Have Your Child Cosign A Loan
Having your child cosign a loan works similarly to adding them as an authorized user on a credit card. They’ll reap the benefits of your on-time payments, though they won’t have the ability to “use” the loan unlike with a credit card.
School loans, auto loans and personal loans are all popular choices to cosign with your child thanks to their practicality. Plus, having a mix of credit types on a credit account is more beneficial than just one credit type.
Teach Them Financial Literacy
As you’re building your kid’s credit, teach them how credit cards work along with healthy financial habits. Teaching your child a few fundamental principles can help them maintain their credit score after they’ve opened their own account.
A good place to start is demonstrating the differences between credit cards and debit cards. Sign your kid up for a debit card of their own to help them understand the basics of banking. From there, you can explain how credit cards require on-time repayment on a monthly basis. Once they have the basics down, move on to other credit-card-specific information, like credit reports, fees, credit limits and rewards.
You have 2 goals in building your kid’s credit. The first is giving them the financial literacy needed for success starting from adulthood and beyond. The second is to give your kid the excellent credit score they will need to choose from among the best credit cards on the market.
Considering some of these cards can generate hundreds or even thousands of dollars of value each year, it pays to prepare your child with excellent credit. That way, they’ll have access to the best options available when they’re ready for a first credit card.
Picking Your First Kids Credit Card
To help you and your child most during their credit journey, apply for a rewards or cashback credit card. Even if you don’t have the credit score for a top-of-the-line card, a cashback credit card makes for an ideal kids credit card as it naturally generates value during the credit-building process.
If you’re worried a rewards card will encourage you or your kid to spend aggressively, a 0% intro APR card is also a great choice. Depending on the type of intro APR, you can save interest on existing debts or make large purchases and pay it off interest free over the promotional period.
Education is the road to financial success, now and in the future
The risky nature of borrowing on credit means we’re unlikely to see kids credit cards in the same way we’re seeing kids banking products.
However, given the importance of a strong credit score for major purchases, helping your kid build credit early should be a priority. It offers them a big leg up once they’re ready to strike out on their own.
Article By Steven Dashiell
About the author
Steven Dashiell is a writer at Finder specializing in all things credit cards. His expertise has been featured on numerous outlets, including U.S. News & World Report, Time, CBS, Fox Business, Lifehacker, Martha Stewart Living and more.
