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It’s natural to want to give your kids every advantage that you can muster, and great credit might be on your radar. An excellent credit score can unlock financial opportunities at the lowest possible cost. That matters a lot when interest rates are high or rising (or both). A high credit score could also boost your child’s ability to get approved for precisely the loan or credit card they want.
You can wrap up a great credit score, tie it with a bow, and serve it up with cake on your child’s 18th birthday by following a few simple steps.
How to jump start your child’s credit score
The best way to jump start your child’s credit score is to make them an authorized user (AU) on one of your own credit card accounts. An authorized user is someone you add to your existing credit card account. They are authorized to use the account but they can’t make any changes to it and they aren’t responsible for payments. Financial responsibility stays with you, even if you have a personal agreement that your authorized user will pay for their transactions.
We all get a credit file as soon as we have at least one account reported to the credit bureaus and one account that’s at least six months old (the same account can satisfy both requirements). Credit scores are based on the information in your credit file.
John Ulzheimer, credit expert formerly of FICO and Equifax, explains that you can help someone build credit by making them an authorized user because when you add them to your account, “there is a good chance the card issuer will report the account level information” to the credit bureaus.
Can anyone be an authorized user?
The minimum age to be an authorized user varies. If the lender has no age requirement, you could add your infant as soon as they have a Social Security number. If you do this and the account is more than six months old, your child will have a credit score the very next time the account is reported (usually monthly).
Just because someone is an authorized user doesn’t mean you have to give them an actual credit card. You can add them for the credit score benefit alone.
Could your child have an 800 credit score by age 18?
It’s probably not possible for your child to have an 800 credit score by the age of 18 because authorized user status is not weighted as heavily as having your own accounts (and they can’t apply for their own account until they turn 18).
“Because AUs were abused by credit repair companies many years ago, FICO has built logic into their scoring models that discounts the value of having an AU account or accounts on your credit report,” says Ulzheimer.
Your child could, however, have a score well into the 700s. Here are some strategies that could help:
- Start very early. Add your child as an authorized user when they’re young. People with very high credit scores tend to have an average account age of 15 years or longer.
- Add your child to more than one account. Some self-declared internet credit hobbyists and a few small surveys have shown that it’s hard to have a top score with only one account.
- Pay your bills on time and keep credit card balances low or at zero. These are the two most influential factors in a credit score. You’ll need to ace them yourself in order for your child to piggyback off your good credit.
The one factor that will be difficult for you to engineer will be credit mix. Credit scores are partly based on whether you have experience with different kinds of credit accounts, such as personal loans, mortgages, car loans, and credit cards. This factor accounts for about 10% of your FICO® Score. Your child will have to build this piece on their own.
Should you gift your child a high credit score?
It’s a good idea to help your child start adulthood with a healthy credit profile.
“Think of it like driving a car. No parent in their right mind would toss the keys to their kid and say, ‘Now go learn.’ Teaching them the ins and outs when they’re young is a great way to set a solid foundation,” says Ulzheimer.
As you help your child on their journey to good credit, keep a couple of cautions in mind.
- Never open an account in your child’s name. Whether it’s a loan, a utility, a credit card, or something else, applying for an account using your child’s Social Security number is illegal and unethical.
- Avoid cosigning a loan for your child. Cosigning means you’re responsible for the debt. Getting (and handling) their own account is important training that every child should experience.
Establishing credit is just one piece of your child’s personal finance puzzle. It’s even more important to teach your child how to handle their accounts. If they can master the right habits, a great score will come naturally.
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