Establishing good credit early in life will help teens as they transition into young adulthood. A good credit score allows your teen to have an easier time renting an apartment, buying a car or house, and even getting lower insurance rates.
While teens can't get their own credit card until age 18, parents and guardians can help younger teens build good money habits. Once they've mastered the basics, there are plenty of ways for teens to start building their credit. Even younger teens can get a jumpstart with some help.
- Making timely payments and limiting debt are the best habits for building a good credit score.
- Parents and guardians can prepare teens for using credit by opening a checking account and modeling good financial habits.
- Parents and guardians can help teens establish credit by sharing a credit card or funding a deposit for a secured credit card.
- Teens can independently explore student loans or a student credit card.
Start With Banking Basics
Establishing a good banking history can help your child build a strong financial foundation and begin building money management skills. Having a checking account with a debit card helps your child get used to digital spending. Once your teen has a checking account, help them learn how to spend wisely and avoid overdrafts or declined debit card charges.
Make the distinction between debit and credit cards early. Describe how debit card purchases come out of a bank account, while credit card purchases create a debt balance that has to be repaid.
Talk to Your Teen About Credit Cards
You can start talking to teens about credit cards years before they’re ready to have one. Teach them about the difference between credit and debit cards so they understand that credit cards can lead to debt, while debit cards can’t. Help your child avoid expensive credit card mistakes by breaking down how credit cards and interest work, and showing them what debt looks like.
Model Good Financial Habits
Children learn by watching the adults around them. Your financial habits, like setting a budget before shopping and avoiding impulse purchases, will play a major role in shaping your teen's financial habits.
Pay Bills on Time
Paying on time is one of the most important financial habits to demonstrate to avoid extra fees and build a good credit score. Show your child your system for tracking payment due dates and ensuring your payments are made on time. Walk your teen through your system for paying bills and explain why it works for you.
Keep Balances Low
Maintaining low credit card balances is key for building a good credit score and avoiding too much debt. Show your child your billing statement or online account and discuss your approach to maintaining a low balance, including the timing of your credit card payments.
Go Over Different Types of Accounts
Credit cards are just one type of account that helps build credit scores. Lenders like to see that borrowers have experience with different types of accounts, such as installment loans, auto loans, and mortgages. Consider sharing with your teen your approach to opening new loans and how to determine the right time to apply.
How Teens Can Build Credit
There are multiple options for teens who want to build credit, either on their own with a credit card or loan, or with your help.
As a parent or guardian, you can help jumpstart your teen's credit history even before they’re 18 by adding them as an authorized user on one of your credit card accounts, or even a new account you start just for your teen. An authorized user can be added without a credit check and get the benefit of having the account included on their credit report. Authorized users can make purchases on the account, but do not have legal responsibility for the debt. As long as you pay your bills on time and keep your balances low, your child’s credit score will benefit.
Setting up your child as an authorized user on your credit card lets you retain control of the account. If your child becomes irresponsible and overspends, you can remove their authorized user status and close the account.
Teens who borrow money to go to college can start building their credit with student loans, even if the loans are deferred. Simply having a loan on their credit report helps your teen's credit age and mix. Any payments made toward the loans will help build a positive payment history.
Students should not take out loans for the sole purpose of building their credit score.
Student Credit Card
While teens under the age of 18 can get student loans and become authorized users on a credit card, there are more credit-building options for those 18 and older. If a student can prove they have sufficient income to repay their debts, or they get a co-signer, they can get their own credit card.
Most major credit card issuers offer a student credit card, which functions similarly to a regular credit card but is tailored to their needs. Student credit cards tend to be open to applicants who are new to credit, and the cards have lower credit limits. In addition, many offer rewards and perks that students would benefit from, such as complimentary subscriptions for food delivery services, cash back on ride-share purchases, even statement credits for good grades.
A retail credit card is another solo credit card option that teens 18 and older can explore. These limited-purpose cards are known for approving applicants with little or no credit history. Credit limits are typically low, which will keep your teen from running up a high balance. However, retail credit cards do have high interest rates, which means steep finance charges when the balance isn't paid in full.
Secured Credit Card
A secured credit card is like a regular credit card, except it requires a security deposit against the credit limit. Your teen can use the card normally, and as long as they don't default, the security deposit is refunded when the account is closed or upgraded to an unsecured card. Deposits are fairly reasonable—some secured credit cards allow a minimum deposit of as low as $50, but most are in the $200-$300 range. You could help your child get a secured credit card by paying some or all of their deposit.
Credit Builder Loan
With a credit builder loan, the actual loan amount is held in a savings account while your teen makes monthly payments toward the balance. Payments are reported to the credit bureaus, helping your teen build a good credit score. Once the loan is repaid, the savings account is unlocked and the full amount is accessible. Applicants must be at least age 18.
Check to see if your credit union or bank offers credit builder loans.
How Can Teens Monitor Their Credit Score?
Six months after your child opens their first credit card or loan, they'll be able to check their credit score for a snapshot of their credit health. There are plenty of free services teens can use, including Credit Karma, Credit Sesame, and CreditWise by Capital One. Some free services may require your teen to be at least 18 years old to sign up for an account.
Teens older than 18 may receive a FICO score each month with their billing statement if they have a credit card with select credit card issuers—including Bank of America, Discover, and Wells Fargo. They won't have access to the free score if they're only an authorized user or joint account holder.
For a full view of their credit information online, teens older than age 13 can access copies of their credit reports from AnnualCreditReport.com. Requests for a minor’s credit report from the three major credit reporting agencies must be made by mail. While they won't receive their credit score—those are not generated until they are 18 years old—they can verify that the information on their credit report is accurate.
The Federal Trade Commission encourages parents to check their child’s credit report when they turn 16.
Frequently Asked Questions (FAQs)
How do you build credit without a credit card?
You can build credit by taking out a loan and paying on time each month. Loan options include a student loan, auto loan, personal loan, or credit builder loan. Short-term loans such as payday loans or pawn loans do not help build credit.
What are the best credit cards for building credit?
The best credit cards for building credit are flexible with applicants who are just starting out and report credit history to the credit bureaus. Discover it Chrome for Students and Apple Card are two that make our best first credit cards or best credit cards for students lists.