building children's credit

[mistysue]

I am paying my daughter to get good grades. (learning disabled, struggles so much she really needs something to motivate)

How do I go about doing something like a prepaid card that actually builds her credit? Are there age restrictions? I have no idea what I'm talking about but it occurred to me that if I paid her by putting money on a pre-paid card she would have access to it and it would be doing something helpful. She has had a savings account since birth but doesn't know about it. How old do you have to be to get checking accounts or to have credit cards? I would like to stick to pre paid so she can't do anything stupid before she is old enough to realize it effects you for 7 years or so.

 

[davper]

I think they need to be 18 to establish credit.

Here is how I establish credit for my wife who had none:

At the same bank that she has a checking account...
Deposited 1000 in a 1 year CD
Used that CD to secure a 1 year loan for a 1000
Placed the borrowed 1000 in the bank account to pay the loan each month.
Don't miss a payment

Worked great. I was then able to get her a $12,000 CC with 11% interest rate

 

[mistysue]

That's sort of funny that at 18 you are an adult so they will check your credit to get a phone, turn on power, have an apartment, etc. But you can't establish credit until you actually need it for survival in our society.

 

[DisneyMandC]

My mom added me as an authorized user on her credit card when I was 15. I was allowed to carry it in case of emergencies, but never used it. I am 26 now and my credit report shows that my credit age is 11 years, so it must establish credit before you are 18. I also had a checking account at 15.

 

[Eastern]

My mom added me as an authorized user on her credit card when I was 15. I was allowed to carry it in case of emergencies, but never used it. I am 26 now and my credit report shows that my credit age is 11 years, so it must establish credit before you are 18. I also had a checking account at 15.

This is also what I was told: if you add your child's checking account to your family of accounts, and add them as an authorized user on your own cc, they get their own credit history. After a couple years my son started getting his own offers for credit cards and savings/checking accounts (he was >18 by this time). This allows you to follow them closely and they get experience using their ATM card and cc.

 

[Nebraska_Disney]

I had an auto loan at 16 that my parents co-signed for me. I also had a co-signed credit card at 18. Those were both pretty good steps in getting credit. As a 40 something adult, my credit score is over 825, which is great when you need to utilize it.

 

[supersnoop]

Generally speaking, anyone under 18 cannot legally enter into a contract. So, whether it's a car loan or a credit card, someone has to guarantee it or they could just walk away with no legal recourse.

Some (emphasis on some) banks will report credit history on authorized users, but most will not. I believe American Express does, or at least use to. But, since an authorized user is neither responsible for usage or payment, that "history" is irrelevant to anyone offering credit.

And, no, a prepaid card onto which you load funds will not help build credit. Because there's not credit there. It's just another form of currency. Credit is when someone gives you something before you pay for it; a car, electricity, a place to stay (rent), or even just cash. Unless that business is reporting on you, your credit won't be affected one way or the other.

 

[PlutoPony]

Our bank (large national one) has a Teen Checking account for 13-17 year olds. Must have an adult co-owner and I think you can put restrictions on it as to what transactions they can do without your approval. Zero fees other than for printed statement. As soon as they turn 18, it has to be converted to a "normal" account. You can still be on the account but have no ability to restrict transactions. This type account is typically available at banks but not widely advertised so you have to ask about it.

 

[Jen and Ashwin]

Checking accounts and prepaid credit cards do not contribute towards credit history, since they are not actually sources of credit, just as supersnoop said. Some cards will report authorized users' credit history. I know that I have been on my parent's BP gas card as an authorized user since I turned 16. This is my oldest credit account. The next thing I got was a store card to purchase a computer when I was 18. To get approved for enough credit, my dad had to cosign with me. After that, I never needed a cosigner for any of my accounts.

Also remember, if you add your child as an authorized user to an account and you then default, this will potentially show up as negative credit for your child.

 

[mcorbo]

You would need a secured credit card, not a prepaid one to build credit. You deposit money into a bank account and they give you a credit card with a limit that matches your deposit. capitalone and merrick bank are 2 that have them that I know of.

I know Amex and Chase both report to my daughters credit report as a authorized user.

 

[tvguy]

If she is 18, many banks have student account programs. Checking account, savings account and credit card with a low limit (about $2,000) that they get without a parent co-signing.
DD is 24, and even though DW and I ultimately gave her the money for all her bills in college, it gave her a stellar credit rating (she literally would pay off a change online the same day she made it).
There is a negative though. She is done with college, and unemployed, and gets flooded with credit card offers because all the companies look at is that credit score. She really could get into financial trouble.....although I assume with no income, she would ultimately be declines if she accepted some of those offers.

 

[DLgal]

My son is 11 and has a savings account with a debit card through our bank. We direct deposit his allowance every month and he has access to the money via an atm, if he needs it. When he is older, I will list him as an authorized user on our credit cards so he can have a credit history early.

 

[Tarheel girl 1975]

Most lenders will discount authorized users because they are not responsible for any payments.

I was a loan officer. To me, if the only thing on someone's credit report is an account reporting them as an authorized user, they still have no credit history.

 

[mistysue]

That makes sense to me that a pre-paid card wouldn't count, I thought it sounded ridiculous but I keep seeing suggested when adults are talking about building their own credit.

 

[ksh1111]

Many Credit Unions will do a Student Visa for 16/17 year olds. They must have a parent cosign, attend a class and it has a really low limit (like $250). Once they turn 18, they need to apply for one on their own, but if they have made the payments on time, they will likely get approved. With the new lending laws that went into effect a few years back, college students have a much harder time getting credit, so establishing credit early is good. If over 18, another good option is to deposit $500 and get a secured Visa (or Mastercard). After a year of on time payments, then apply for it to be unsecured.

 

[Pea-n-Me]

Our kids had savings accounts since they were little at a local bank, but once they started driving, at 16, we went to our national bank with them and they had their own debit/savings accounts set up, connected to one of ours, where they could deposit, but not withdraw. (Which made it easy for them to pay their portion of the car insurance every week, when they deposit their paychecks.) The way it works, too, is that they can have unlimited deposits into their savings accounts, but withdrawals are limited to, IIR, two per month. (Which obviously doesn't apply for debit withdrawals.) It's worked out pretty well with the exception of one month when DS had champagne tastes on a beer budget and overdrafted his checking account - and was rather shocked at how quickly the overdraft fees added up. (Somehow it wasn't protected by his savings, but he's since changed that.) Fortunatley the nice lady at the bank told him they could forgive the fees ONCE. Next time, he has to pay them. But thankfully it was an eye opener for him and now he pays more attention to balances. (It's not like a credit card - you actually have to have money in there in order to spend it, we tell him! ) They've turned 18 since, and there haven't been any notifications that the accounts have to change, so, as it stands, I guess we'll keep them this way for now.

I'm not sure it will help build credit but I think it probably will, with that bank, anyway.

Oh, and I also chose a national bank because of ATM availability. (Though they use the online system primarily.) It was great this week on a college visit seeing those machines all around the school, which, I guess could be a mixed bag, lol, but hopefully will just make life a little easier.

 

[MickeyManiac]

My DS just applied for his first car loan at 21. The loan officer commented on his great credit score (over 800) and that it was because he's an authorized user on my Disney visa since he was 16. This is the first time he's ever applied for credit so I was glad to see that it had some positive effect.

 

[Jen and Ashwin]

Our kids had savings accounts since they were little at a local bank, but once they started driving, at 16, we went to our national bank with them and they had their own debit/savings accounts set up, connected to one of ours, where they could deposit, but not withdraw. (Which made it easy for them to pay their portion of the car insurance every week, when they deposit their paychecks.) The way it works, too, is that they can have unlimited deposits into their savings accounts, but withdrawals are limited to, IIR, two per month. (Which obviously doesn't apply for debit withdrawals.) It's worked out pretty well with the exception of one month when DS had champagne tastes on a beer budget and overdrafted his checking account - and was rather shocked at how quickly the overdraft fees added up. (Somehow it wasn't protected by his savings, but he's since changed that.) Fortunatley the nice lady at the bank told him they could forgive the fees ONCE. Next time, he has to pay them. But thankfully it was an eye opener for him and now he pays more attention to balances. (It's not like a credit card - you actually have to have money in there in order to spend it, we tell him! ) They've turned 18 since, and there haven't been any notifications that the accounts have to change, so, as it stands, I guess we'll keep them this way for now.

I'm not sure it will help build credit but I think it probably will, with that bank, anyway.

There seems to be a lot of misinformation about building a credit history.

Checking accounts, savings accounts and debit cards do not appear on your credit history or affect your credit score. When you use a debit card, the money is immediately taken out of your banking account. You are not borrowing money like you would with a credit card. Also, if you have a check overdraft, it still will not appear on your report unless you do not pay the fees and the bank turns the bill over to a collection agency.

If you want a more limited way to start building credit for a child that also limits their ability to overspend, you should look into a secured credit card. A secured card is essentially the combination of a debit card and a credit card. A bank allows you to open a special account in which you deposit money, and you’re then issued a credit card to charge against the amount deposited. The security deposit in the savings account will not go towards paying the statement unless you default. It is important to note that interest rates on secured cards might be high, so payment in full each month is ideal but to build positive credit history, be sure to make at least the minimum monthly payment. Also, make sure the credit company reports to all three major credit reporting bureaus to help build your credit.

 

[Marionnette]

My DS just applied for his first car loan at 21. The loan officer commented on his great credit score (over 800) and that it was because he's an authorized user on my Disney visa since he was 16. This is the first time he's ever applied for credit so I was glad to see that it had some positive effect.

Exact opposite result for my 23-year-old son.

He was on my Southwest Visa (issued by Chase, just like your Disney Visa) from the time that he was 16. He wanted to buy a new car last spring. He checked his credit score online before going to the dealership. Online credit score looked great. Dealership told him that he would need a co-signer because he had no credit record. We loaned him the money outright, rather than co-sign for him. It all depends on the credit reporting agency.

He has since gotten his own credit card through the bank where he has had a savings account since he was 8 and has had a checking account with them since he was 18.

 

[Pea-n-Me]

There seems to be a lot of misinformation about building a credit history.

Checking accounts, savings accounts and debit cards do not appear on your credit history or affect your credit score. When you use a debit card, the money is immediately taken out of your banking account. You are not borrowing money like you would with a credit card. Also, if you have a check overdraft, it still will not appear on your report unless you do not pay the fees and the bank turns the bill over to a collection agency.

If you want a more limited way to start building credit for a child that also limits their ability to overspend, you should look into a secured credit card. A secured card is essentially the combination of a debit card and a credit card. A bank allows you to open a special account in which you deposit money, and you’re then issued a credit card to charge against the amount deposited. The security deposit in the savings account will not go towards paying the statement unless you default. It is important to note that interest rates on secured cards might be high, so payment in full each month is ideal but to build positive credit history, be sure to make at least the minimum monthly payment. Also, make sure the credit company reports to all three major credit reporting bureaus to help build your credit.

Points taken. Good idea on the secured credit card.

What I meant when I mentioned credit at our bank, was not in the traditional sense of a credit bureau reporting, persay, but "in our bank", meaning they know us, they know them, and like with Marionette above, because they're customers there, at some point, when they want or need it, I expect they'll be able to open a credit card or get a loan through them, etc.