At What Age Can You Start Building Credit?

Financial management can be complex, particularly for uninterested youngsters or inexperienced young adults. As a parent, you could help your kids to become more mindful of their spending habits and keep an outstanding credit score. You may help them prepare by outlining how the credit system works and mentoring them through the financial decision-making process.

This blog post is geared specifically to help parents educate their children about good credit-building and maintenance strategies. By making the financial system less daunting for your children, you can help them tackle future financial hurdles easily and confidently.

When Can You Start Building Credit?

The general answer to the question “What age can you start building credit?” is 18, but there’s more to it than that. According to CNBC, any young adult over 18 can begin establishing and growing their credit score. However, various states might impose varying limits on opening a credit account for a minor. 

Some states may have different age restrictions, so verify with your state. CNBC also states that several financial organizations may even permit credit card usage to minors under 18, provided they have the authorization to use them. It is vital — regardless of age — to impose a solid foundation for your children’s credit future as soon as possible.

How To Help Your Child Build Credit

If you want to help your child be better at credit and financial management, here are some strategies you can try depending on their age.

Before Turning 18

As previously stated, most states don’t allow minors under 18 to open a credit card account. At this stage, you’ll profit from learning and motivating tactics, as demonstrated by CNBC. However, you can also offer them hands-on experience by making them an authorized user on one of your credit cards. Here are some strategies for this: 

• Teach them the credit system: Educate them on the fundamentals of credit, starting with what a credit score is and how to read their credit report. You may help your child make wise financial decisions by helping them understand the process and principles underlying the credit system.
• Authorize them to use a credit card: With account authorization, several credit card companies enable parents to permit their children to use their credit cards. This way, your child will have first-hand experience using and managing credit cards.
• Teach them budgeting strategies: If you’re not yet confident about authorizing your children to use your account, you can teach them a few budgeting strategies. Allow them to handle their allowance or use a budgeting tool to assist them with controlling their finances.
• Emphasize the importance of paying bills on time: Although your children are not yet in charge of utilities, you may stress the significance of paying bills on time. Explain to them how late payments can hurt their credit score and how they should keep organized and pay their obligations on time.
• Incentivize saving: Rewarding your child for saving can teach them to respect money and the significance of financial discipline. For example, you could make it more engaging by having them compete to see who can save the most money in a month or by having them complete tasks to earn additional allowance.

After Turning 18

When your children reach 18, it becomes easier to assist them in building their credit scores since they may now create a credit card account in their own name, according to Lexington Law. 

Here are several approaches you can take:

• Create a student credit card for them: Student credit cards offer lower credit limits and may not often require a cosigner, making them an excellent starting point for young adults. Shop around for the finest deals and choose one with affordable interest to maximize their advantages.
• Create a secured credit card: A secured credit card is an excellent option if your children want something other than a student credit card. Secured cards require depositing money as collateral, serving as the credit limit. This way, they can still build their credit score without putting themselves at risk.
• Teach them about loans: Loans are a significant part of adulthood and are often needed to make substantial purchases like a car or a home. Explain to them the fundamentals of taking out loans, and let them know that they should always aim to pay off their loan appropriately.
• Co-sign a loan with them: If you co-sign a loan, you are legally accountable for the debt your children cannot pay. Consider co-signing a used-car loan to teach them how to manage their finances properly and avoid financial problems.
• Help them set big financial goals: Set long-term financial objectives with your children and explain the necessity of creating and adhering to a budget. Encourage children to save for the future, whether for a vehicle or retirement, so they may learn to prioritize their costs and make sound financial decisions.

Understanding How Credit Works

As a parent, you already know how the credit system works, but explaining it to your child could be tricky. Here’s an example of how you can simplify credit and help your children understand the basics, based on an explanation from the University of Oklahoma.

Taking “credit” involves borrowing money from a financial organization, such as a bank or credit card company, and you must repay it with interest. By using credit, you are boosting your credit score, allowing you to take out larger loans in the future to make larger expenditures.

Monitoring Credit Reports

Before your child turns 18, it’s essential to check their credit for any history of use. Some fraudsters can mask themselves under the guise of your child’s name to open accounts or take out enormous loans, as reported in PR Newswire. You should monitor your child’s credit and ensure all the information is accurate and up-to-date. Once they turn 18, they must check their credit reports at least once a year to ensure no discrepancies.

Set Off Your Child Towards Financial Freedom

Financial literacy is the key to financial freedom. Without understanding the modern monetary system, your child is at great risk of sinking into debts and other catastrophic financial liabilities. Help them set off to a great start with the help of First National Bank of Oklahoma. Contact us today to learn more about our financial solutions and how you can help your children start building a solid credit background.