At what age would you (or did you) start to help your child build credit?
What stragegies did you use? Authorized user on your card? A card of her own (perhaps kept by you and only used in conjunction with you)? A secured installment loan with automatic payments?
Are there any ethical issues here? I mean, I'm don't know how much I'd co-sign for her when she's 21 (that's still a long way off). So if I don't know if I'm going to consider her a good credit risk, is it right of me to essentially help her convince a bank she's a good risk (when it's really my behavior and not hers that is establishing the credit)?
Managing money and building credit is a journey.
We established a savings account with debit card for our daughter in her name at age 16. When she became a junior in college and wanted an apartment we co-signed for responsibility on rent payments. Once she turned 21 she applied and was approved for a couple college student credit cards based solely on her part time income. We are now prodding her to get a checking account and set-up auto pay for her CCs as a withdrawl from her saving account.
She likes the convenience of her debit card and does not want to worry about missing CC payments. Unfortunately, debit cards don't build credit history. Hopefully we can motivate her to set-up auto pay and start using her new credit cards.The debit card has taught her to spend within her means. Switching to credit cards is worrisome as she is concerned about misplacing a bill - thus the importance of auto draft for monthly payments.
P.S. I understand building credit history based on having a AU status on a parent's card can help. We chose not to go this route with DD.
Thanks for the reply, Thomas.
I hope my daughter is as responsible as yours sounds when she's that age (and I realize it didn't happen by accident ).
Hey Plip. You might find this article interesting:
It mentions briefly one particular card that I had never heard of: the DCFU Teen Visa Platinum Credit Card, created with high school students 16 to 18 years of age in mind.
I think the ethical issues are red herrings. They are real, in a way, but if you take them seriously, then you are going to have to acknowledge your unethical complicity in the hundreds of ways upper middle class people give unfair benefits to their children (over against kids who grew up in the inner city): giving them a stable home, encouraging them in school, paying for college, whatever. The fact is that kids who grow up with two dedicated well-off finanicially responsible parents have all kinds of advantages that are unfair, if you admit the uncontestable fact that poor children didn't choose their parents.
Thanks for pointing me to that article, Dixie. I did find it interesting. Kudos!
I think you're right about the ethics. It's a slippery slope I don't want to get started on.
When each of our kids turned 15 I added them as AU's on my Amex PRG card. It's a great way to build their credit while controlling their spending. I set limits at $200.00 and they used it for gas and food. Now that my son is 23 he gets offers from every major credit card including Chase, Citi, Amex, and Discover.
I can share what we did with our daughter, which has led to her having scores in the 790-795 range at 22 years old.
For starters, our daughter was old enough to know what was going on when my wife and I went through some very difficult financial times about 4 years ago. Our daughter as 17/18 at the time. We were honest with her about the mistakes we made and I educated her to do her best to not make the same mistakes that we did.
I have been with US Bank for many years, so when our daughter was about 17 or 18, we went into a US Bank to open up a checking and savings account for her. We also had her apply for a credit card, which she was approved for, but only with a CL of $500. I explained to our daughter how important it was to keep Util low. She actually listened well and usually kept the reported balance under $150 or so. She did creep it up to about $250 one or two months, but then brought it back down.
About a year later, she applied for a student loan. With our help as well, she made every student loan payment on time, That student loan was recently paid off.
When our daughter was about 19, I added her as an AU on our Capital One card, which had a perfect payment history and CL of $8400. $0 typically reported on this account each month, as I paid it prior to the statement cut.
At about 20, our daughter applied for a Capital One Quick Silver, after I encouraged her to do so to build her profile. I was pretty sure she would be approved since she had the perfect history of her own US Bank card and Student Loan, and the help of the AU account. I expected that she would get a CL of maybe $1000, To my big surprise, Cap One actually approved her with a $10,000 CL! I was a happy for her, but also scared to death that she would do what a lot of young people do and run it up quickly! I had a VERY serious talk with her about that $10K CL! I let her know that on her very low income, getting that balance up high would take her the rest of her life to pay off. I am pleased to report that after having this card for about a year and a half now, she has never let more than about $300 or maybe $350 report on it.
So, by having the perfect history of her own US Bank Card and student loan, then getting and maintaining her student loan, followed by getting her own Cap One, and keeping Util very low, as of December her scores are much higher than mine, sitting in the 790 range. We could not be more pleased.
The biggest thing I believe we did was educate her very early about all this. She understands the importance of never being late and keeping Util low. She understands that Inq's can hurt for a bit and that she needs to build her AAoA, so she has never fallen for a store card offer that is offered at the register, or anything like that.
I hope this is helpful. Best wishes!
Thanks so much for sharing that EW. It's kind of inspiring (if that doesn't sound too corny).
My own daughter is only six years old, so I'm not actually considering doing anything with her regarding credit (beyond education) for several years. Still, it's something I've been focusing on for myself lately, so I can't help but think of how (and when) to begin training her.
She does help to collect the eggs from a few chickens we keep, and she sells the ones we don't eat ourselves for $4/dozen to a family friend. Every so often she and I sit down with a stack of one dollar bills representing her recent revenues and divide it up according to the budget she and I have worked out together (just three categories). She counts out 10 bills at a time, and then separates them into the appropriate piles. It's not credit -- too early for that -- but she is being introduced to budgeting, which I suppose is an important prerequisite to effective credit management.
Anyway, thanks again for your story. It warmed my heart.
I am enjoying this thread. One thing my father did for us when we were old enough to grasp the concept of interest is to set up a Dad Bank for us. He gave us 1% per month on whatever we saved. This was 1976-82 so interest rates in the world were much higher back then. But truly if a parent wanted to do that now it wouldn't break him. (If a teenager manages to save $1000 that's only $10 a month in interest.) The key is finding different ways to make the concept of saving attractive.