7 Tips for Building Your Kids Credit - mycreditdoc.com

7 Tips for Building Your Kids Credit

building credit for childrenIt’s graduation season again.

Grad parties, open houses, baskets full of cards with cash and checks in them, maybe even keys to a car.

All good things for a young adult making the move from high school to college, but there’s something else parents can do to give their kids a headstart in their financial future and that’s to help them build their credit.

Few college students (and sometimes even their parents) understand what they need to do to build up their credit.

Building credit may not be as sexy as getting a car, but it could be the key to them buying their next car and even a house later on.

Here are 7 Do’s and Don’t of building credit:

Number 1: The first tip is to use a parent’s already established credit – Most young adults and many parents do not realize they can add the child as a joint borrower to one of their credit cards.

If you have an account that has 4 years of good payment history and you add your child to the account, they now have 4 years of good history instantly added to their credit report. This is the fastest way to add a positive account to your credit report and it can have a tremendous impact on increasing your child’s credit score.

A client of mine told me how his mother used this technique for her five kids when each of them went off to college. Simple to do, very effective and it got all 5 of the siblings off to a great start in building their credit.

Tip Number 2: If the parent cannot get any of their credit cards in their child’s name or can only get them added to a secured credit card. Make sure the credit card you choose reports to the 3 main credit bureaus, otherwise it will not have any impact on the young adult’s credit.

(Note: A secured credit card is like a credit card but the borrower must first deposit a set amount of funds into the account first. It’s more like a piggy bank than a line of credit).

Tip Number 3: Get student loans in the child’s name if they are approved. If you have put a credit card or 2 in your child’s name, the long credit history should help them get approved for student loans in their name.

Putting the student loans in the child’s name is important for several reasons. One reason is it will report on the child’s credit report instead of the parent’s. This will help with building their credit and it will also help diversify the type of accounts on their credit report. Car loans are another good account to put in their name because it also diversifies the types of account on their credit report.

There are four things you want to avoid when you’re building credit for you child (or even for yourself):

Number One: Avoid payday loans if you can, because they do not build credit and have exorbitant interest rates.

Number Two: Avoid credit accounts that do not report to the 3 credit bureaus. Many credit cards for people with little to no credit or damaged credit do not report to the credit bureaus. You should avoid the fees and hassle of applying for one of these cards and stick with the ones that will give you the credit reporting benefits.

Number Three: Do not borrow more than you can pay

Number Four: Avoid charging more than 30% of your credit limit on any credit cards. If you hold a balance over 30% of your total credit limit, it can negatively impact your credit score. This ratio of credit balance vs credit limit is called credit utilization and it is worth about ⅓ of your credit score. Making your payments on time is not enough, how much you charge is also very important.

Again, these probably aren’t as sexy as getting a new car for graduation but following these tips can help your child start building their credit so they can get their own cars, loans and house by themselves in the future. Give the gift that keeps on giving.


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About the Author

Jeremy Maher dealt with harassing collector calls, debts piling up and damaged credit for years. He improved his situation and started helping others.   That leads us to today, where Jeremy has DIY solutions for stopping collection harassment, eliminating debt and improving your credit scores. His clients can improve their situation within the comfort of their own home.