How to Build Credit for Your Children: A Complete Guide

June 30, 2022
15 mins

As parents, we just want children to lead happy, healthy, comfortable lives. There are lots of ways to brighten your child’s future, but this one is often overlooked: give them a head start on their credit history.

Financial security is linked to improved health, life satisfaction, and relationships; and our personal credit scores are at the center of it all. While your child’s independence may seem a long way off, it’s never too early to set them up for a smoother credit future. 

Read to learn how to build credit for your children and uncover answers to common questions parents have along the way. 

Why should you build credit for your children? 

Simply put, building credit for your children charts the course for greater financial security in adulthood. 

Most young adults have little or no credit history, which makes it challenging to access loans and credit cards. When they are approved, they’re susceptible to sky-high interest rates that make it harder to stay out of debt on a tight budget. 

An established credit history helps your child sidestep these early financial barriers. Since landlords and employers often check credit scores, it can even help them stand out from their peers for housing and job opportunities. 

Actively working on credit from an early age also teaches children important money management skills – ones they’d otherwise learn through trial and error in adulthood. 

Building credit for your children gives them a powerful head start on their financial future. But as a parent, where do you begin? 

The 6 best ways to establish credit for your child

There’s no single best way to build credit for your child. The right strategy depends on several factors – including your child’s age, level of responsibility, and the credit histories of trusted adults in their lives. 

The following six strategies can help parents lay the foundation for a lifetime of healthy credit use, whatever your child’s present circumstances. 

1. Build good credit habits before building credit 

Financial laws protect minors by prohibiting credit accounts to be opened in their names. While there are limited ways to build credit for your children before they turn 18, they’re never too young to start learning about responsible credit use. 

As a parent, you can use these early years to teach your child about money management, how financial systems work, and how to use credit wisely. 

Demonstrate how debit and credit use differ

Most children don’t understand the difference between credit and debit use. While they may see you swipe a credit card to pay for things, they don’t always know the money doesn’t come directly from your bank account. These moments are an opportunity to teach your child about our credit system. 

When you use credit, educate your child throughout the process. You might explain how borrowing and debt work, why purchases acquire interest, how you use credit responsibly – and even how you haven’t in the past. 

It can be tempting to hide financial missteps, but transparency helps your children avoid learning the same hard lessons later on. 

Start with responsible banking

When your child is ready, take them to open their own bank account. Making deposits (even small ones!), withdrawing cash, and using a debit card helps teach them about the different ways we use and access money. 

This can instill vital money management skills that will benefit your child when it’s time to borrow, rather than spending what they have on hand. 

Teach budgeting and saving skills

Managing money responsibly is an essential part of credit use. That’s why it’s never too early to teach your children how to budget and save.

This simple framework can help kids take control of their finances from an early age:

Try these tips to help your child with budgeting and saving their money.

Practice smart credit building habits

Most young adults don’t understand the factors that contribute to a credit score. Instead, they often understand credit as simply a way to borrow money for things they want now, but can’t afford to purchase. Essentially, they may view credit as a way to live beyond their means. 

You can help your child get the most out of their future credit use by teaching them about credit-building. 

This can look like: 

  • always paying on time
  • spending only what they can afford
  • paying their debts in full
  • saving for unexpected expenses (even small things like cotton candy at the fair)
  • always holding up their end of financial agreements

To drive the point home, parents might even consider teaching children about interest by charging a percentage for “allowance advances” or other parental lending.

2. Add your child as an authorized user

Authorized usership is one of the best (and only) ways to build credit for your child if they’re under 18. 

An authorized user is someone other than a primary account holder who is permitted to use a credit card.  Essentially, it allows your child to “share” someone else’s credit history and borrowing privileges. 

How does making my child an authorized user help their credit?

Most young people enter adulthood with zero credit history. This makes it harder to access credit-building opportunities. Authorized usership enables your child to “piggyback” off your good credit to establish their own. 

When you add your child as an authorized user, the account will show up on their credit report. If the account remains in good standing, your child will start building a positive credit history. 

What to know before adding your child as an authorized user

Adding your child as an authorized user links your credit histories, for better or for worse. Both negative and positive activity impact your and your child’s credit score. 

Make sure the primary cardholder has a positive borrowing track record before adding your child to any account.

Your child doesn’t need to use the account for it to show up on their credit report. If you grant them a card of their own, however, you’re on the hook for their borrowing decisions. Before allowing your child to extend credit, set clear expectations for how they’ll use and repay it.

Many lenders allow minors to become authorized users, but not all of them. Before applying, verify your child meets minimum age requirements. You’ll also want to make sure the credit card company reports authorized users under 18 to the national credit bureaus.

When should you remove an authorized user?

When you remove your child as an authorized user, the account will no longer show up on their credit history. This means they can’t leverage your credit history to obtain credit of their own. Before removing your child from an account, make sure they’ve established other positive lines of credit. 

Can you close an account with an authorized user?

Another caveat of building credit for your child by adding them as an authorized user is that you’ll need to keep the credit account open to maximize their results. 

Credit age, determined by the length of time that a consumer has been using their oldest line of credit, is an important factor in building credit. If you close a credit account linked to an authorized user, their credit age may drop which could hurt their score.

Explore: What you should know before adding an authorized user

3. Sign up for a secured credit card (ages 18+)

Secured cards help new borrowers establish credit, but they come with caveats. Unlike regular “unsecured” cards, secured cards require an upfront deposit, usually equivalent to the card’s credit limit. This ties up much-needed cash, and leaves borrowers with a low credit limit.

While low limits and cash deposits reduce risk for creditors, secured cards can do more harm than good. Card users don't have to spend much to ruin their debt-to-credit ratio, also called "credit utilization." Plus, interest expenses pile up despite the collateral that backs the card.

Explore: Secured vs. Unsecured Credit Cards

Use caution when building credit with a secured credit card

As your child uses their secured card, the creditor will report their activity to the national credit bureaus. Just like a regular credit card, however, your child will need to borrow responsibly to build good credit. 

  • Pay on time. Repayment history is one of the most important factors in a credit score. Above all, your child should pay their bill on time each month. 
  • Use credit sparingly. Credit utilization - or debt-to-credit ratio - is a key factor in a credit score. Keeping a low balance is key, as most secured cards have suck low limits that any balance remaining month-to-month could damage their credit score.
  • Pay the full balance. Secured cards usually have high interest rates. Paying in full each month saves your child money and helps keep their finances under control.

4. Apply for a student credit card (18+)

Student credit cards are another common way for young borrowers to build credit. They work just like regular credit cards, with some pitfalls: they generally have lower credit limits, higher interest, and fewer perks. 

Before applying for a student credit card, make sure the lender reports to the national credit bureaus. Since every penny counts on a tight budget, look for cards without an annual fee. 

Requirements for opening a student credit card

Student cards are easier to get approved for with limited credit, but your child will still need to meet a few requirements. If they’re under 21, they’ll need proof of meaningful independent income – otherwise they’ll need you or another adult to cosign the account. 

Older borrowers will still need to provide proof of income, but it’s easier to get approved without a cosigner. 

How to open a student credit card

Most major credit card companies offer student credit cards, including Capital One, Chase, and Discover. Each card comes with different incentives, so look for perks that complement your child’s existing expenses. 

For example, if they commute or live on their own, consider a card that offers cashback for groceries or gasoline. Furnishing a dorm room? One that rewards household purchases might make the most sense. 

5. Take out a credit builder loan (18+)

Credit builder loans help your child build credit while diversifying their “credit mix.” These loans work exactly opposite traditional loans: instead of receiving money up front, the borrower gets paid once they pay off the full balance. This enables lenders to grant credit to new borrowers without the risk they won’t pay their debt. 

Repayment periods for credit builder loans generally range from six to 24 months and have higher interest rates than a typical loan. During this time, the lender reports account activity to the national credit bureaus. If your child makes their payments responsibly, they’ll build their payment history.

Unfortunately, this method involves tying up cash that could be necessary for your child to cover an unexpected expense. Additionally, interest fees take a chunk out of your child's funds.

How to take out a credit builder loan

Many small banks and credit unions offer credit builder loans. Start by researching what’s available in your community. You may have to pay a small fee up-front, but these loans are generally structured to reduce barriers for lower-income borrowers. Loan amounts usually range from a few hundred to a few thousand dollars. 

6. Utilize interest-free credit-building tools (18+)

Thankfully, high-interest loans and credit cards aren’t the only way for young people to establish credit. Adulthood is expensive enough already. With exciting tools like StellarFi, your child can build credit without a secured card or any additional debt. 

With StellarFi, your child can link monthly “adulting” expenses like rent, their cell phone bill, and even their streaming subscriptions. 

StellarFi pays on their behalf and reports their positive repayment history to the credit bureaus. As a member, your child can also access free personalized financial counseling. 

StellarFi is free and available to anyone over 18. Learn more about our innovative approach to credit-building. 

Parent FAQs: How to build credit for your child

At what age can you start building credit?

One of the only ways for minors to build credit is by becoming an authorized user on someone else’s credit card. Minimum age limits generally range from 13-16 years old. 

However, not all lenders report minors authorized users to the national credit bureaus. To open a loan or personal credit card, borrowers must be at least 18. If they’re under 21, borrowers will need to provide proof of independent income or have a cosigner. 

Can a minor get a credit card without their parent knowing?

Minors are not eligible for personal credit cards, with or without a parent’s permission. While someone under 18 can use a debit card or bank account, federal law prohibits lines of credit to be opened in a minor’s name. 

The only way for a minor to lawfully access a credit card is to become an authorized user on a parent or guardian’s account. 

Are authorized users responsible for debt?

An authorized user is not responsible for debt incurred on a credit account; but negative account activity can harm the authorized user’s credit score. 

Both the primary cardholder and authorized user should be accountable for account spending and repayment. At the end of the day, however, the primary cardholder is responsible for any outstanding debt. 

Can a parent open a credit card in their child’s name?

While it may seem like a good idea to give your child a headstart on their credit history, it’s illegal to open a credit card in a minor’s name. 

Federal law prohibits anyone under 18 from becoming a primary cardholder, with or without their consent. If you’re wondering how to establish credit for children under 18, consider making them an authorized user on your credit card. 

At what age should a child start using a credit card?

A child should start using a credit card when you trust them to use credit responsibly. While minors cannot open their own personal credit cards, they become authorized users on a trusted adult’s account. 

There’s no official minimum age: some credit cards permit authorized users as young as 13. Keep in mind, extending credit is a big responsibility. Before allowing your child to make charges on your personal credit card, you should be confident they’ll use it wisely.

How can I check my child’s credit report for free?

To check your child’s credit report for free, make a direct request with each of the national credit bureaus. The credit bureaus do not knowingly keep credit files on anyone under the age of 13. In fact, since minors can’t open credit accounts, most children do not have credit reports. 

If your child does have a credit report, it’s usually for one of three reasons: reporting errors, authorized usership, or identity theft. Children can be tempting targets for identity theft, since the fraud can go undetected for years on end. That’s why it’s important to periodically check if your child has a credit file. 

Experian allows anyone over 14 to check their own report, while a parent will need to request for children 13 and under. For Equifax, you’ll need to send a letter and provide personal information for children under 18. Transunion asks parents to fill out a child identity theft form. 

What is the best credit card for teens?

Federal law prohibits minors from opening credit accounts, so most teenagers cannot have their own credit card. Once your child turns 18, there are several types of cards designed specifically for new borrowers. 

Student credit cards and secured credit cards are both great options. Look for: lenders that report to the national credit bureaus; cards with low or no annual fees; and offers that make sense for your child’s financial situation. 

Every generation deserves Stellar credit

As a parent, you want to set your kids up for success – whatever they do in life. Helping them establish healthy credit gives them a headstart that lasts long into adulthood. Whether you want to build credit for your child now or a little further down the road, it helps to have strong credit of your own. 

Unfortunately, our current credit system has been influenced by discriminatory policies in the past, leading to a considerable credit gap for many communities such as people of color and LGBTQ Americans.

For children affected by these credit gaps, there are not as many opportunities to “share” their parents’ credit as authorized users or having a cosigner. 

Since credit touches nearly every aspect of our financial lives, these systemic disadvantages also help maintain the daunting generational wealth inequalities in the United States.

How does StellarFi help people build credit for their children?

StellarFi is on a mission to level the playing field, and make the benefits of good credit available to everyone (and their kids!). With StellarFi, you don’t have to take out high-interest loans or pony up for a secured card to improve your credit history. Now, you can build credit using the bills you pay each month already. 

Parenting is busy enough already. StellarFi puts credit-building on autopilot, and improves 100% of the factors that contribute to your credit score. Simply sign up and link monthly expenses like your rent, car payment, and even subscriptions like Spotify or UberEats. 

Getting started is easy, and there’s no credit check. Take a look around and join StellarFi today

The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

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On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.