Building Your Teen’s Credit Score
June 2018
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Building Your Teen’s Credit Score
Start building your teen’s credit before they even move out

When your teen finally takes the big leap and moves out of the house, they’re going to need a solid credit score for a lot of life steps: renting an apartment, getting a loan or finding a good deal on insurance. For that reason, it’s important that teens build up their credit scores before they move out. There are a few ways you can prepare them for this in the years leading up to graduation.

Sign them up for a debit card or retail credit card

Getting your teen started with their own bank account is a significant step in building their credit score without ditching their safety net. A teenager under 18 years old can still sign up for a debit card; they just need a co-signer. Since you are co-signing on the card, your personal account will be linked to your teen’s in case of an overdraft.

If you’re not comfortable signing your teen up for a debit card with your bank, consider a retail credit card. Jean Folger, a contributor at Investopedia, recommends retail and gas credit cards since they are easier to get approval for. “Be sure to ask if the card requires payment in full each month or if it allows minimum payments,” says Folger. “If the card must be paid in full each month, it may not be reported as revolving, and therefore will not help your teen’s credit.” Folger also suggests that regardless of requirements, teens should be encouraged to pay off their debts in full each month.

Teach them the credit card basics

Credit cards are a bit more complex than debit cards, so it’s important to sit down your teen and help them understand the basics. Signing them up for their own credit card is a bigger step than signing up for a debit card, but it’s an additional step that will help boost their credit score — assuming they pay the bills on time and in full. U.S. News & World Report contributor Amelia Granger says that the most critical skill a teen can learn is to pay their bills in full, even if that means starting with a smaller credit limit. Make sure you are monitoring your teen’s bills to confirm they’re not damaging their credit score rather than building a good foundation for the years ahead.

Add them as a joint user

If you’re not ready to sign your teen up for their own card just yet, consider adding them as a joint user to your own account. This will give them a card of their own with access to the account for emergencies, errands or other needs. “If you want to be doubly careful, add them as an authorized user without actually giving them the card for use,” suggests Devishobha Ramanan, a writer for the Huffington Post. However, keep in mind that if you are struggling with your own credit score, adding your teen to your account could end up damaging their score as well.

Follow up with them

As a parent, it’s imperative that you keep an eye on your teen’s progress. Without understanding the ins and outs of credit and the implications of not paying your credit card bills, a teen could end up damaging their credit score significantly. Follow up with your teen each month to make sure they paid their bill in full, they understand their responsibilities and they’re comfortable with the process.

Teens don’t have to start building credit on their own. As a parent, you can help them start off on the right foot.

Published by ACIPCO Federal Credit Union
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Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.  
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