Credit
How can a parent help their child develop a credit history without actually giving them a credit card?
How can a parent help their child develop a credit history without actually giving them a credit card?
I know of 4 ways:
* Secured credit cards – require a cash security deposit.
* Authorized user – add your kid to your credit card account as an authorized user.
* Store cards (they often have high interest rates.)
* Your child might also ask you to co-sign or become a joint applicant with her on a card. Caution: If you co-sign, any late payments she makes will be reported on your credit card too.
That was a GREAT answer, Denny. Well done! Please allow me to add a bit to your answers.
The secure credit card is a simple way for the person who wants to get credit, but cannot get qualified for a regular credit card. You give the bank a few hundred dollars. They put it in a savings account and then they give you a credit limit based on the amount you gave them. After 6 months or so, request the secured card to be lifted and BOOM, you got yourself a regular credit card.
You can add your child to your credit card to get them a credit history. There are two caveats though. (1) You need to handle credit wisely otherwise you will be giving your child a poor credit score. (2) Don’t give the child a card. Giving a teenager a credit card would be absolutely crazy to me so just don’t do it. Build their credit and don’t give them any chance whatsoever to screw it up.
Store credit cards are easier to get qualified for and that’s one reason so many people have them. While this is certainly an option, it is not one I would recommend unless the options stated above are not possible.
Co-signing is the last option in my mind. There are far too many risks involved for most people to do it, but it is an option for those of you who have total confidence in the co-applicant. Just keep in mind, you are on the hook if they bail!
Here is one final point when discussing credit cards. ALWAYS pay it off every month. If you cannot do that, you are not ready to own a credit card. Cut the damn thing up until you are ready. The wise use of credit can help you in many ways and the poor use of it can ruin you. Be mindful of that.
Questions:
* It sounds like you recommend option 1. (Secure credit card). Is that right?
* How early can a parent start this process for their kids?
The secured credit card is a good option for those who are organized, prepared to pay the card off every month, and seeking a to improve their credit score. It usually applies to young people who are starting out or to those who are trying to repair their credit.
A parent can start as early as they like with putting a child on the credit card. This is a great way to provide a child a credit history with no negative consequences with 2 caveats. (1) Do not give the child an actual credit card. (2) The parent has to be responsible with their credit. The child will end up benefitting or suffering based on how the parent using their credit. Onward!