building children's credit

[jesse8931]

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.

This.
I spend 2 years dealing with this. My gf was an authorized user of my cc and and when we applied for a home loan we were denied due to her not having a credit history.

 

[kaitlin-n-mom]

I added my daughter as a user on my credit card when she was 15. I also made sure she understood the value of good credit. She is now 24 and has excellent credit.

 

[celina14]

Like a lot of others have said, if you add your child on as an authorized user then it can show up on their credit report and will be counted into their credit score. But, most credit analysts would look at it and discount it. On the other hand, not all credit decisions are made by a person looking at the report. A lot of times it just goes through an automated system and is score driven so if your child has a good FICO score because of being an authorized user then that could still benefit them when they start to build their own credit. And they can be added at a younger age onto your account but they wouldn't be able to individually open credit until they're 18.

 

[louey]

We put our son on our joint MasterCard account. He has a card with his name on it, he is at college and only uses it for gas. This way when he graduates this should come up on a credit check for him. I did it years ago and only just gave him the actual card this year.

 

[ruadisneyfan2]

Call me crazy, but what is the point in creating an unearned, artificially-high credit score for my kids that will eventually give them more power than they are likely able to handle?
If I can get ds18 a score of 800 for years by my diligent payments of my bills, when he applies for a card with income from a little PT job, he'd be offered a credit limit of say $5000 instead of $500 which is more appropriate.
Honestly I dont worry about his credit score because he'll be establishing credit when he starts paying back student loans.

 

[SparklePixie]

Call me crazy, but what is the point in creating an unearned, artificially-high credit score for my kids that will eventually give them more power than they are likely able to handle?
If I can get ds18 a score of 800 for years by my diligent payments of my bills, when he applies for a card with income from a little PT job, he'd be offered a credit limit of say $5000 instead of $500 which is more appropriate.
Honestly I dont worry about his credit score because he'll be establishing credit when he starts paying pay student loans.

He should establish credit before he starts paying on student loans. Most people don't pay on student loans until they have graduated college, which makes them 22-23 years old. Paying rent on time, utilities, car payments, cell phone bills, etc also helps build a credit history.

 

[Jen and Ashwin]

I think the point is that it can be very beneficial to have a good credit score, even at a young age. Many decisions are based on this score and it could save a lot of money, which when you are young could matter a lot. Cell phones, electric bill deposits, rental applications, car loan, mortgage, etc.

For example, with a fair credit score you can get a 60 Month auto loan at a rate of 4.36% for a $15,000 used car. This is a total of $1,235.89 in interest payments. With excellent credit, the same loan from the same lender could be at 3.16%. This results in total interest of $1,721.48, or $485.59 less in interest payments. I know I would rather have that money in my pocket.

 

[ruadisneyfan2]

It is extremely unlikely that he'll have a car loan or mortgage while he's still in college.
At least, I dont know of anyone who did. Most of my classmates drove old, used cars that were bought by their parents.

 

[Jen and Ashwin]

My cousin is 17 and has a car loan, co-signed by my aunt. She didn't get a used car from her parents. She has to work for her car as do many, many people in this world. Those of us lucky enough to get a free car are pretty lucky indeed.

 

[kaitlin-n-mom]

Car insurance companies also look at your credit score.

 

[ruadisneyfan2]

My cousin is 17 and has a car loan, co-signed by my aunt. She didn't get a used car from her parents. She has to work for her car as do many, many people in this world. Those of us lucky enough to get a free car are pretty lucky indeed.

Yes I was lucky in that aspect but i wasnt spoiled. My parents contributed a total of $400 to my college. The rest I paid myself.

 

[ruadisneyfan2]

Car insurance companies also look at your credit score.

This would be the one instance that I think it would help a teen to have a good credit score (with no chance of harming them.)

Then again, ds doesn't have a car so no need to worry about that. We did offer to get him one if he got a PT job while in HS, a beater around $2-3k, and he could pay/contribute to the insurance. We felt he had to have a need for a car, not just a gift for turning 17 and being cute.
He applied to around 30 places and got 3 interviews but no job. It seems around here many adults are working in jobs that used to typically be filled by teens. Anyway, by the time it was around 2 months before going away to college, there was no point in applying to places where you'd only be working 7-8 weeks then leaving. They wanted permanent employees. He doesn't need a car at school so I think it's a waste to pay thousands for car insurance (and possibly hundreds more in car repairs) to have the thing sitting here at home for months at a time. We don't mind driving to his school to bring him home on the occasional weekend and while he's here he can use my car.

Capital One 360 has great teen checking & savings accounts that turn into adult accounts when they turn 18. The ATM card is free so he can transfer funds between the 2 accounts and shop online. (He did cut grass & shovel snow but not a regular job with steady hours.) Having bank accounts is not an extension of credit though and if he did get a summer job next year I wouldn't mind helping him open a secured cc or cosign for him to get started but again, that would only happen if he had a job.
No job, no credit. jmho.


Anyway, my original point was not suggesting keeping kids in the dark about money & credit but more that their score will increase over time as their financial responsibility increases and they prove themselves. The more likely scenario with kids being handed a great score without earning it themselves is not that they'll get a car loan at 17, but that kids get into cc debt over their head. It's just way too easy.

 

[PlutoPony]

My son got his own CC (no cosigner) based on just summer job income at 19. Decent credit limit too. It was with the bank we all use, and part of their college student package. They want to get you early as a FULL customer (not just for checking/ATM stuff) and keep you when you graduate and get a full time job. After a year of using it (not high credit utilization %) and paying it off in full each month, they increased his credit limit. He was THRILLED - not that he needed the extra but it was tangible proof that he was doing the right things financially and moving forward. I'd forgotten how it made me feel early on to build credit, how grown up it made me feel lol

 

[disneychrista]

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.

Are you sure they are talking about a "secured" credit card? Where one deposits say $500 into an account and gets a Credit Card with a $500 limit. The money can only be used by the bank if you were to default on the card.

 

[mistysue]

Call me crazy, but what is the point in creating an unearned, artificially-high credit score for my kids that will eventually give them more power than they are likely able to handle?
If I can get ds18 a score of 800 for years by my diligent payments of my bills, when he applies for a card with income from a little PT job, he'd be offered a credit limit of say $5000 instead of $500 which is more appropriate.
Honestly I dont worry about his credit score because he'll be establishing credit when he starts paying back student loans.

I see the point of giving her credit that she will have lower rates and be ahead, not that she can take more money. I bought my house young and only got the mortgage at all because it was while they were being less picky but had a higher rate because of my age and therefor lack of credit. If I had had better credit I could have had a lower rate on my house. We're talking tens of thousands of dollars I am essentially paying as a fee for not buying a pack of gum and paying it back once a month while I was younger. I could have a chunk of my retirement or of a kid's college fund but instead the bank just keeps it because my parents thought the same way... "why build credit early?" Lower interest rates in your 20's could change the course of your entire life by the time you have a house and car.

 

[SparklePixie]

It is extremely unlikely that he'll have a car loan or mortgage while he's still in college.
At least, I dont know of anyone who did. Most of my classmates drove old, used cars that were bought by their parents.

We were homeowners at 23. Yes, we were out of college, but it isn't unheard of to buy a house in your early 20's.

 

[ruadisneyfan2]

I see the point of giving her credit that she will have lower rates and be ahead, not that she can take more money. I bought my house young and only got the mortgage at all because it was while they were being less picky but had a higher rate because of my age and therefor lack of credit. If I had had better credit I could have had a lower rate on my house. We're talking tens of thousands of dollars I am essentially paying as a fee for not buying a pack of gum and paying it back once a month while I was younger. I could have a chunk of my retirement or of a kid's college fund but instead the bank just keeps it because my parents thought the same way... "why build credit early?" Lower interest rates in your 20's could change the course of your entire life by the time you have a house and car.

So why not refinance now? We were at 6.5% for 30 yrs when we bought in 97. Now we have 3% for 15 yrs. You're not stuck with it.
I had great credit in my late teens and early 20's through my own efforts thanks. No one gave it to me for free.

Let's just agree to disagree.

 

[Shelly F - Ohio]

My parents helped build my credit by purchasing a new mattress for my bed and financed it in my name with them as a co signer.

 

[aaarcher86]

My mom opened a CC in my name at some point when I was in high school and just set a recurring bill to it that she'd pay off each month - not an authorized user. No idea how, but it must not be that hard since kids have their identities stolen, have collections, etc.

I was able to buy a house at 20 because of it. I'd definitely recommended it as long as you do it responsibly.

 

[ruadisneyfan2]

I could have a chunk of my retirement or of a kid's college fund but instead the bank just keeps it because my parents thought the same way... "why build credit early?"

I'm curious...
Do you really blame your parents for this? Is it THEIR fault that you pay extra now for buying a home while having a low credit score?
Did you have to buy a house at that time? Why not build up your credit a year or 2 with a store cc before entering into such a huge commitment under less than ideal conditions?
I was 26 when we bought a condo. I had great credit but even though dh provided most of the down payment we couldn't put anything in his name because he had awful credit. Cc's never paid, defaulted on a student loan, etc (We weren't married then so we could easily put it in my name.)

Once we were married we added dh to the mortgage and deed to rebuild his credit knowing that we wanted a family and a single home in a couple years and his credit rating would be considered then. Two years later when we moved it was a non-issue.

I've also made some stupid financial choices but sometimes lessons learned the hard way are the ones we learn from the most. Still they were nobody's fault but mine.