Chris Peplinski
[Editor's Note: This is a guest post from Chris Peplinski, who runs a Facebook page on Building Your Credit Score. We have no financial relationship.]
I’ve been teaching and writing about credit scores for many years. Having a credit score is a constant part of our lives. You can either shun it and never use credit or you can embrace it, know the facts that make up a credit score, and use your score to your advantage.
Young adults usually begin their lives with poor credit scores, either by making mistakes or not having any credit. This makes it very difficult to begin to build their credit scores. So what can young adults do to ensure a better chance of having a good credit score early in life? Put your children on your credit card accounts!
How To Start Building Your Childs Credit Score
This strategy to start your children’s credit score at a young age is extremely beneficial. They will be able to apply for credit cards, loans, and mortgages without a co-signer. They will also be able to secure the best rates for car insurance, have success renting their first apartment, and if a job needs a good credit history, they will have it.
“Put my child on my credit card account? That’s nuts!” I’ve heard this many times, but as long as you are diligent with not letting your child use the card and you keep your accounts in good standing, your child will reap the benefits when they graduate high school.
So what do you do? Call your credit card companies and tell them you would like to add your child to your account as an authorized user. They will ask for your child’s name, date of birth, and social security number. Then instantly, they will be added to your accounts. You may request a card with their name or none at all. As soon as your first statement after the child is added to the account is reported to the credit bureaus, your child will have a credit file and get a score. The younger you start this process, the higher their score can become with age. [It is possible for a child to have a credit history older than they are if you put a teenager onto a card you've had for a couple of decades.-ed]
Consider Freezing The Child's Credit
Once a credit report has been made with the three credit bureaus, (Experian, Equifax, and TransUnion) the best line of defense to assure your children will NEVER have to deal with identity theft or fraud while growing up is to put a credit freeze on all three of their credit files. This only costs $9-$30 in total, depending on what state you live in.
This whole process is quick and easy. Then, as long as you make all your payments on time and keep your balances as close to zero as you can, your children may graduate with a credit score of 800 or better!
Reasons Not To Add A Child To Your Account
Now there are some reasons NOT to do this credit score building action for your little one. If you don’t have any credit cards, or only use a debit card, this will not work for you. Debit cards are linked to your bank account and are not reported to the credit bureaus.
Another reason you wouldn’t want to add your child is if you carry large balances on your credit cards. If you do, it will keep your child’s credit score low and not help out in the long run. The amounts owed on your credit cards make up 30% of your credit score.
Finally, if you have missed payments in the past or are the type of person who knows they may miss payments in the future, don’t add your child to your accounts [and cut up your credit cards, close your accounts, and start using the envelope system for your budgeting.- ed] Payment history makes up 35% of your credit score and your child’s newly formed credit score can be destroyed, taking years to recover.
This strategy to start your children’s credit score at a young age is extremely beneficial. They will be able to apply for credit cards, loans, and mortgages without a co-signer. They will also be able to secure the best rates for car insurance, have success renting their first apartment, and if a job needs a good credit history, they will have it.
Good luck setting your children up to thrive with their credit scores and all the perks that come with it. This is just another step in a list of many to steer your children toward future success!
What do you think? Have you tried to this trick to build an instantaneous credit history and get a credit score for your child? Did you tell them you had added them to your account(s)? Comment below!
My father did this for me when I was young. He added me to his credit card around the time I was 15 for “emergency purposes” and I stayed on his credit card until I was through medical school despite having my own card from the age of about 19 on. I did occasionally use his card as well for a few emergencies in college and he purchased me a tank of gas twice a month while I was in medical school to help out (thanks Dad!). My father has superb credit and I have no doubt it helped. When I applied for my first mortgage at the age of 32 I had credit score over 800.
Like Beau, my father added me to his credit card for emergencies only. My dad watches his statements like a hawk so there was no chance of me sliding anything in there without his knowledge. I’m very grateful that he did because it helped with my credit as I got older.
This is a really interesting idea that I’m pretty surprised I hadn’t heard of before. I’ll be recommending this to clients!
think i could do this for a newborn?
Rex, it works for newborns too, as soon as they have a social security number.
I’m glad to hear that some people have tried this strategy and have been successful! It’s more difficult in this day and age for minors to obtain their own credit cards due to the 2011 Credit Card Act, but as the article states, there are loopholes we can use for minors to obtain credit.
For clarification purposes, I do not recommend closing your credit card accounts. Doing so can hurt your credit score. If you do not want to use credit cards anymore, keep them open and don’t use them except for once or twice a year to keep them active in your credit mix. However, if you have a spending problem, then it is best to cancel the cards and cut them up as soon as possible.
Just to clarify the above reply, closing a credit card will NOT hurt your credit score for 10 years. If the account was in good standing when it was closed, it will remain as an account in good standing on your CR for 10 years. Doesn’t matter if it is “closed” or “open”. At the 10 year mark, the account will drop off your CR and then you may see a dip in score due to a decreased average age of accounts.
In regards to the Guest Post, I’ve considered doing this for my son, who is only 2 right now. I’ve only tried AMEX, but they require your additional card members to be 15 years old, so I was unable to go through with it.
Would anyone else who has been successful with this be able to say what cards they did it with (Discover, Visa, or MC, and what banks?)?
I want to correct my statement above, in that closing an account may lower your score if you lose the credit line and therefore end up with a higher utilization %. Sorry!
For further clarification, closing credit card accounts can increase your credit utilization ratio (CUR) which accounts for 30% of your total credit score. If you have 4 cards with $5000 limits on each and you spend $4000 per month [I think he means $1000 per month-ed] on those 4 cards, then your credit utilization ratio is 20%. Now if you were to close 3 of the 4 cards and continue to spend $4000 a month on your remaining credit card, then your CUR is 80% – which will make a huge dent in your credit score.
Best case scenario is a 0% CUR. This 0% can be obtained if you pay off your credit card balances BEFORE the statement date each month.
I was able to add my 2 month old child to my Fidelity AMEX and VISA accounts. All done online. No luck with other cards such as Costco AMEX or Pen Fed VISA.
My understanding has always been that closing an occasional account that is completely unused will impact your credit score but only minimally. Its not only about CUL. One must remember that when applying for loans not only is your score and CUL important but so is your “available debt” which is the total credit limit on your cards.
About 10 years ago I decided to simplify life. I got rid of a couple of department store cards. I closed 2 of my 4 credit cards after transferring a balance (neither of which I used) and I called and had the limit reduced on one card form $25,000 to $15,000 (who lets a 24 year old have a 25K limit?). I did this all in the span of about 6 months and it made very little impact on my credit score. If your cards were in good standing (as stated below) it won’t impact you much until well down the line when your credit history over that time period should more than make up for it.
There is almost no value credit wise, for an open and never used account. You don’t’ build credit on accounts that aren’t utilized.
So back to the original post, which cards and banks allow minors to be added on as authorized users?
I’ve only tried through AMEX online and they state quite plainly that they do not add additional cardmembers unless over age of 15.
The three banks that allowed me to add my 3 year old son as an authorized user are:
Wells Fargo
Discover
Bank of America
When I called the customer service numbers and told them I wanted to add my son, none of them had an issue with what I was doing. The Wells Fargo rep even told me that she has been receiving a lot of calls lately to add children to parent’s accounts.
I have not tried any other banks.
My thoughts on credit scores are that they don’t matter as much as some people think. You need to have a little credit history to get a mortgage, but you don’t need any to get a student loan. Those are really the only loans most people ought to be getting. The only possible loan I would consider in my future is a mortgage on an investment property. Now some insurance companies, utilities etc check credit scores, so I need to have something there, but I don’t care if my score is 750 or 820. All these little tricks like decreasing utilization just don’t matter nearly as much as simply paying what you owe when you owe it. My credit score will be perfectly fine if I do nothing else with it for the rest of my life than pay my mortgage and buy gas on a credit card once a month.
I think it’s pretty silly to put a 3 year old on a credit card. That’s just not going to do anything you couldn’t accomplish by putting him on at 15. As I understand it, you can put the kid on at 24, using a card you’ve had for 20 years, and accomplish the same thing. Instant 20 year credit history for the kid. I think it is far more important to teach the child to use credit responsibly than to artificially boost his score. I mean, it’s a cool trick, but it just doesn’t matter that much. The last thing I want for my 18 year old is this incredible credit score that gets his mailbox filled with credit card offers.
I agree there is too much focus on credit scores. However adding your child as an authorized user allows the parent to freeze the child’s credit file and hopefully reduce the chances of identity theft.
A good credit score is good to have. A 740 score will get you the same rates as a 820 score. The higher your score, the more wiggle room you have just in case something happens you’re not expecting. A higher score is kind of like insurance.
For me, I’m extreme when it comes to building my credit. It’s my passion. Money magazine did a story on me about my extreme ways. Each of us have a passion and mine is my credit score.
http://money.cnn.com/2010/08/24/pf/perfect_credit_score.moneymag/
By doing everything I can to obtain the elusive 850 credit score, I have found all the ways to either build or hurt credit. I’m up to 826 and while I’m on this journey, my goal is to help others with their credit along the way.
I agree that a good score is good to have. I disagree that there is some benefit to having an exceptional score other than following a passion. In my view, this is a good place in life to be a satisficer, rather than an optimizer. I saw a good article today about bandwidth. We’ve all only got so much, so we’d best spend it on what we think is best.
I think it would be far higher yield to describe what the credit history of someone with a 700, a 740, and a 780 looks like. If your credit looks more like the 780 guy than the 740 guy, you can use your mental bandwidth elsewhere. 40 points ought to be plenty of insurance. Others like to look at a credit score as something to burn to make money by doing periodic app-o-ramas. That’s a lot less popular now that you can’t get 5% in a money market fund.
Great perspective.
Great post!
For us novice financial folk reading this site to educate ourselves; would someone mind sharing a free and hassle free way to check my credit score?
My AMEX gives me a free credit score yearly and I believe there are places that will give you a free score if you sign-up for their credit services. Otherwise the three credit companies will provide you a score for a small fee.
My parents co-signed my first credit card when I was 12-14 I believe. It had a $500 limit and I was able to use it for emergencies only or when I was out with my parents (ie. grocery store, gas stations) and they would pay it. They instilled good monetary values at a very early age. Over the last 10 years, I use credit cards on every single purchase (only use cash when a place doesn’t accept credit and use cash back bonuses). Thus, I have amassed a 15 year history of credit. Last year my yearly free AMEX credit score was 774/830.
That’s great to hear Adam!
As for free credit scores, you can get yours if you have a Discover “It” card or a Barclay credit card. Both give you your score monthly for free as an added service. I have both and my credit scores from them are correct.
I guess good parenting must come first, I know plenty of kids when I went to college who overburdened themselves with credit card debt. Next, I see no reason to ever take out a loan unless it is for school or for a mortgage. For a mortgage, my kids will have to have 20% down and an emergency fund before that happens. Therefor by then they would automatically have good enough credit (700+)
To my understanding the credit score is not necessarily how much line of credit you have, or how many car loans you have taken out, but instead it is a scoring system based on risk, and the riskier you are, the more you must pay to service your loans. I would assume someone with that elusive 850 score should be relatively debt free, high net worth, and always pays their bills on time.
Chris, I think you have a very interesting hobby. I can definitely see how you can enjoy learning the intricacies of the scoring system. Good luck.
“For a mortgage, my kids will have to have 20% down and an emergency fund before that happens. Therefor by then they would automatically have good enough credit (700+)”
Or else what? You sound like a control freak. Your adult offspring can get an FHA loan without your permission. And those loans don’t require a large down payment or an excellent credit score.
Great article! It’s great to start building credit at an early age and take positive steps towards building your desired credit score.