How to help your teenager build credit

As a parent, you always want to make sure your kids are on the path to a bright future—at work, at home and in life. Learning how to build credit can be part of that. Good credit scores can give young adults access to good rates and terms on credit. It could even help them when applying for a job, apartment or cellphone plan. 

What you’ll learn:

• Having a checking or savings account can help kids practice skills that also apply to managing credit.

• Even before they start building credit, it’s a good idea to check your child’s credit reports.

• You can make lessons about credit relatable by talking about how it helps with things like getting a phone or a place to rent. 

• When they’re ready, your teenager could become an authorized user on one of your accounts or apply for a secured or student credit card.

You know your teen best, so you can decide what’s appropriate for them. But here are some ideas:

Some people keep their spending money in a checking account and short-term savings in a savings account. Learning how to use and manage both accounts might teach your teen skills that could apply to managing a credit card.

Once you think they’re ready, you may be able to open a bank account for your teen. As the joint owner, you can help monitor and manage the account. But you can make sure they’re able to have some control and get practice as well.

The Capital One MONEY teen checking account is an option for parents or legal guardians and a child who is at least 8 years old. The account comes with a debit card that they can use, and there are no minimums or fees. It also includes tech tools to encourage them to start budgeting and setting goals and to give parents access and oversight.

If you have younger children, you don’t need to wait. You can start them with a Capital One Kids Savings Account and then add the teen checking account later.

The basics of credit can be pretty simple: You borrow to purchase goods and services right away. And then you pay the money back later, sometimes with interest. But you could build on that by explaining:

• The differences between credit cards and debit cards

• What creditworthiness is

• Credit reports and credit scores

• Factors that impact credit scores: payment history, credit utilization, new credit applications and hard credit checks, credit mix 

• How good credit scores help with getting a credit card, qualifying for a car loan and securing a good interest rate

• Whether your teen has a starting credit score

You can help your teen start with a clean slate by checking their credit reports. Even if they can’t get credit on their own, there are still ways they could already have a credit report, including by error or because of identity theft. And that could lead to headaches once it’s time to open an account.

You can contact the three major credit bureaus—Equifax®, Experian® and TransUnion®—to check your child’s credit and dispute any errors. And, according to Experian, they can check for themselves once they turn 14.

When your teen is 18, you can introduce them to CreditWise from Capital One, where they can monitor their credit for free without hurting their credit scores.

By adding your teen as an authorized user on your credit cards, you may be able to help them build credit before they’re 18. That’s if:

• The card is used responsibly. Responsible use could help your teen establish and build their credit history and contribute positively to yours. Negative actions, like missed payments or a high credit utilization ratio, could hurt both of you. 

• The information appears in a credit report. Capital One reports authorized user activity to the credit bureaus. But credit card issuers aren’t required to do so. If your issuer doesn’t, the information can’t appear on credit reports. And if it’s not on a credit report, it can’t help you improve your teen’s credit scores.

When you add a teen as an authorized user on your Capital One card, you can track their spending and receive real-time alerts on the Capital One Mobile app.

If you think your teen is ready for their own credit card, there are some options you can both consider. Kids have to be at least 18 years old to open a credit card in their own name. If they’re under 21, they’ll also have to prove they can independently make the minimum payments on the account.

Many teens start with a credit-building card like a student credit card or secured credit card.

Loans can give teens a chance to show they can handle making consistent, on-time payments, which could help them build credit. But keep in mind that if your teen makes a late payment or misses a payment altogether, it could also hurt their credit scores. If your teen already has debt, such as a student loan, it’s important to manage it responsibly.

There’s also a type of loan the Consumer Financial Protection Bureau (CFPB) says is “especially beneficial” to those “without a credit score or those with no existing debt.” It’s called a credit-builder loan. If your teen qualifies for one, the lender deposits the amount of the loan into a savings account. Your teen will be expected to make monthly payments on the principal, plus interest. Once the loan is paid off, the funds are released.

Teens can learn a lot from watching how you manage your finances and credit. You might want to make a point of sharing why you’re considering using one credit card over another. Or show your teen what a credit card bill looks like and how the payment impacts your household’s finances.

You can also share stories of mistakes you or your friends made during your teens and what you learned. It might not stop them from making their own mistakes. But hopefully, they won’t make the same ones. And it might help them feel comfortable coming to you for advice.

Helping your teen establish credit is just the start. Maintaining good credit requires responsible habits, which can take time to develop. But learning early might help them reach many future milestones. 

For next steps, you could learn more about adding your teen as an authorized user or student credit cards from Capital One.