Parents can give their near-adult teens a credit jump-start as an authorized user
Dear Opening Credits,
My 17-year-old daughter is now working part-time while in school and wants to know the best way to build her credit score. She has a savings account with a debit card and is good about putting away extra money. Her goal is to purchase a small home after college. – Tony
What a fabulous goal! To achieve it, your 17-year-old should learn how credit scores are developed – and how you can help her along the way.
Credit scores, such as FICO and VantageScore, access the information listed on a consumer credit report and plug it into their algorithms. The end result is a number between 300 and 850, designed to accurately predict lending risk. So, to have a credit score, your daughter must first have a consumer credit report that contains enough data for the scoring company to analyze. That means filling her credit reports with the right kind of activity as soon as possible.
At 17, your daughter is still a minor – but only barely. She won’t be able to borrow from a financial institution on her own, because she cannot enter into binding contracts.
But as soon as she turns 18, she is able to enter that adult world. This is a good time to help her out and set her on the right path. Here is how, in three steps.
Step 1. Pull your child’s credit report, if there is one.
There are many places today you can pull a credit report for free, including at CreditCards.com.
If your daughter does not have a credit report, don’t worry. It’s more worrisome if there is one, since that might signal that someone has stolen her identity. For more information, see our article, “How to check your child’s credit report.”
Step 2. Consider adding your child as an authorized user.
From your description, it sounds like your daughter is a financially responsible young woman, and if the apple hasn’t fallen far from the tree, you are, too. That means you have good credit and an important tool in your hands.
Adults with good credit can add their children as authorized users and give their children an instant credit boost. So add your daughter as an authorized user on one or more of your credit cards in good standing. It’s the easiest and safest way for a person under the age of 18 to enjoy a credit rating jump-start. All you would need to do is contact the credit card issuer and make the request. Once she is an authorized user, the issuer will send the account activity of that card to her credit reports as well as yours.
As long as you always pay on time and in full, her credit scores will benefit.
If you go this route, establish clear rules. Your daughter will be issued a credit card with her name on it, so she will have charging rights with no liability. Explain what she can use the card for and what your repayment terms are. If you want a restricted spending limit, you may be able to arrange that with the credit issuer, or you can even hold onto the card and not allow her to use it at all.
In the event you fall behind on payments or accumulate too much debt, either of you can end the arrangement. The account will be absent from future credit reports so she’ll be back to the beginning, but at least she’ll be safe from credit rating damage.
With your account information on your daughter’s reports, though, she should get a VantageScore in a couple of months and a FICO score in about six months.
Step 3. At 18, your child should apply for a credit card.
When your daughter turns 18 – and if she can prove that she has a steady income, which is the law for applicants under 21 – she should apply for a credit card in just her name. At that point, her credit rating may be good enough for her to qualify for an unsecured card, but if not, she can get a secured card with the cash she has already saved for the required deposit.
As long as your daughter has multiple accounts that show up on her credit report as always paid on time but with very little (if any) debt carried over, her credit scores will steadily rise. While home loans may be available to people with low or moderate scores, to get a mortgage with the best interest rates she’ll want to aim for scores of at least 740. After that you can snip the authorized user cord: She’ll be on her own!