3 Ways to Help Your Child Build Credit

A few easy moves on your part could help your child big time. 

Having good credit doesn't just give you bragging rights; it actually makes life easier to navigate. When your credit is solid, you typically have an easier time getting approved to borrow money, whether it’s in the form of a mortgage, a personal loan, or a credit card. And in some cases, you actually need good credit in order to land a job. 

That's why it pays to help your child build credit -- especially if he or she is a recent college grad without much of a credit history. Here are a few easy ways to go about it. 

1. Help your child open a secured credit card

One of the best ways to build credit is to establish a solid payment history, and that means paying bills consistently on time. But if your child has never really had bills in his or her name, he/she won’t have a payment history. And without one, qualifying for a regular credit card can be difficult.

Of course, that leads to a classic Catch-22 situation: Your child needs a credit card to establish a payment history to build his or her score, but he/she can’t qualify for a regular credit because of a lack of payment history. Talk about frustrating. The solution, therefore, could boil down to your child getting a secured credit card. 

With a regular credit card, you're given a specific spending limit based on your creditworthiness. With a secured credit card, you put down a deposit that acts as your credit limit, and then, as you charge expenses and pay them off in a timely fashion, that good behavior is reported to the credit bureaus that determine your credit score. 

If your child doesn't have the funds to open a secured credit card, putting up that money as a loan could really help him or her establish a credit history. And you don't have to lay out a ton of cash -- even a few hundred dollars will help.

2. Add your child as an authorized user to your credit card

Maybe your child doesn't have enough of a credit history to get his or her own credit card, but you trust him or her to spend responsibly. If that's the case, you can add your child as a user to your own card. Once you do, your child will get a card in his or her name that's associated with your account. If you both do a good job of paying your charges on time, it'll help boost your child's credit. That said, you should know that ultimately, you're the one responsible for paying that card, so make sure that your child is financially mature enough to not run up a huge bill. 

Another thing: Length of credit history is another key factor in boosting a credit score. Even if your child qualifies for a credit card on his or her own, getting added to yours could still make sense if you've held that account for a decade or longer. Of course, it still makes sense for your child to get his or her own card -- but the length of credit history attached to yours could prove instrumental on the credit-building front. 

3. Let your child move back home after college

Chances are that your child has some bills in his or her name -- maybe some student loan payments, a subscription service, or a cell phone. Being timely with bills is the single most important factor in boosting a credit score. If you allow your child to move back home after college without paying rent for a period of time, he or she will not only have an easier time keeping up with bills, but also get a chance to build savings that’ll come in handy for paying future bills on time. 

If your child does not have student loans, in which case he or she will establish a payment history in due time, there is another way you can help. If you’re going to let your child move back home, encourage him or her to take on a couple of bills to establish a payment history -- perhaps the family cable bill or cell phone plan.

Helping your child build credit will set him or her up for success as an adult. In addition to the above steps, be sure to explain to your child how to maintain a solid credit score. Typically, that means paying bills on time, not using too much available credit at once, keeping accounts in good standing open for as long as possible, not applying for too many new accounts at once, and having a healthy mix of credit accounts (such as a mortgage, student loans, and credit cards). 

The more you educate your child on building and boosting credit, the more likely he or she is to retain that information for the long haul.

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