How I'm Helping My 2-Year-Old Build Credit

My son should be in great shape to borrow as an adult.

Building credit can be a challenge, especially if you get a late start. Without a credit card or other debt to show you've borrowed and paid back money, it's difficult to develop a solid track record that makes companies want to lend to you. In other words, you may not get the credit you need to build credit.

The good news is that there are steps parents can take to ensure their children can start out life with a good credit score and don't need to go through a period of struggle or rely on secured cards to get a credit record. I've taken one of the easiest but most important steps to help my son build credit even though he's just two years old.

My technique for helping my son build credit cost me nothing and took only seconds -- but he'll benefit from it for decades.

This simple step is helping me boost my son's credit score

I simply contacted the issuers of several of my oldest credit cards with high credit limits and solid payment records. Then I asked those companies to list my son as an authorized user on my credit card accounts. It only took a phone call (or, in some cases, signing into my account and making the request online).

As soon as I added my son as an authorized user -- I did it when he was a few weeks old -- a credit file was created for him which listed this account as his. In other words, even though he wasn't even a month old, he had the benefit of a credit history that spanned decades and showed 100% on-time payments.

Why does adding your kids as an authorized user help them build credit?

Adding your kids as an authorized user on your credit cards helps them build credit because of how the credit-scoring formula works.

Your credit score is determined by:

• Your payment history
• The average age of your accounts
• The percentage of your available credit you use
• The number of inquiries (requests for new credit)
• The types of accounts

When my son was added as an authorized user, he benefited from having an older average age of credit, as well as a credit card with a high credit limit and low credit-utilization ratio. He also gets a higher score because every payment has been made on schedule. There's no downside, because he is too young to actually use the card.

Any parent who has a long-standing credit card with solid financial credentials can employ this technique, and their children can build credit on the back of a parent's borrowing. It's worth considering, because it can make it much easier for your child to start their financial life.