How to help your teenager build credit

As a parent, you always want to make sure your kids are on the path to a bright future—at work, at home and in life. Learning how to build credit can be part of that. Good credit scores can give young adults access to good rates and terms on credit. It could even help them when applying for a job, an apartment or a cellphone plan.

Learn more about how to help your teen establish credit and practice responsible financial habits.

What you’ll learn:

• Teaching your teenager about credit could help them understand what it takes to build credit.

• You can make lessons about credit relatable by talking about how it helps with things like getting a phone or a place to rent. 

• Having a checking or savings account could help teens practice money management skills.

• When you think they’re ready, you could add your teen as an authorized user on one of your credit card accounts. Or they could apply for a secured or student credit card of their own.

You know your teen best, so you can decide what’s appropriate for them. But here are some credit tips you might use to help teach your teen about the benefits of building a strong credit history and developing smart financial skills.

The basics of credit can be pretty simple: You borrow to purchase goods and services right away. And then you pay the money back later, sometimes with interest. But you could build on that by explaining:

• The differences between credit cards and debit cards

• What creditworthiness is

• Credit reports and credit scores

• Factors that impact credit scores: payment history, credit utilization, credit mix, new credit applications and hard credit checks 

• How good credit scores help with getting a credit card, qualifying for a car loan and securing a good interest rate

• Whether your teen has a starting credit score

You can help your teen start with a clean slate by checking their credit reports. If you discover they have errors or accounts in their name, it could be a sign of identity theft. And that could lead to headaches once it’s time to open an account.

You can contact the three major credit bureaus—Equifax®, Experian® and TransUnion®—to check your child’s credit and dispute any errors. According to Experian, they can check for themselves once they turn 14.

When your teen is 18, you can introduce them to CreditWise from Capital One. With CreditWise, they can access their credit score and credit report anytime. CreditWise is free whether your teen is a Capital One customer or not. And using CreditWise won’t hurt their score.

By adding your teen as an authorized user on one of your credit card accounts, you may be able to help them build credit before they’re 18. That’s if:

• The card is used responsibly. Responsible use could help your teen establish and build their credit history and contribute positively to yours. Negative actions, like missed payments or a high credit utilization ratio, could negatively impact credit scores for you both. 

• Certain information appears in a credit report. Capital One reports the account activity of authorized users to the credit bureaus. But credit card issuers aren’t required to do so. If your issuer doesn’t, the information can’t appear on credit reports. And if it’s not on a credit report, it can’t help you improve your teen’s credit scores.

When you add a teen as an authorized user on your Capital One card, you can track their spending and receive real-time alerts on the Capital One Mobile app.*

Your teen has to be at least 18 years old to open a credit card. If they’re under 21, they’ll also have to prove they can independently make the minimum payments on the account.

If you think your teen is ready, you could take a look at a credit-building card like one of these:

• Student credit cards: A student card is designed for college students with little or no credit history. It might have a lower credit limit than a traditional credit card. But it could offer some benefits, like the chance to earn rewards. 

• Secured credit cards: Secured cards require a deposit. The deposit acts as collateral, and it can make it easier to be approved. Secured cards can also offer benefits like the opportunity to earn rewards.

According to the Consumer Financial Protection Bureau, a credit-builder loan can be “especially beneficial” to those “without a credit score or for those who have no existing debt”. If your teen qualifies for a credit-builder loan, the lender deposits the loan amount into a savings account. Your teen will be expected to make monthly payments on the principal, plus interest. Once the loan is paid off, the funds are released. You can check with lenders about fees and whether accounts earn interest.

Whether it’s with a credit-builder loan or a credit card, borrowing gives teens a chance to show they can make consistent, on-time payments. And that could help them build credit. 

But keep in mind that if your teen makes a late payment or misses a payment altogether, it could hurt their credit scores.

Some people keep their spending money in a checking account and their short-term savings in a savings account. Learning how to use and manage both accounts might teach your teen skills that could apply to managing other financial accounts like credit cards and auto loans.

Once you think they’re ready, you could check into opening a bank account for your teen. As the joint owner, you could help monitor and manage the account. But you can make sure they’re able to have some control and get practice as well.

Teens can learn a lot from watching how you manage your finances and credit. For example, you could make a point of sharing why you’re considering one credit card over another. Or show your teen what a credit card statement looks like and how making the payment impacts your household’s budgeting and finances.

You could also share financial mistakes you made during your teenage years and what they taught you. While it might not stop them from making their own mistakes, it could prevent them from repeating yours. And your open approach could have the added benefit of making your teen more comfortable coming to you for advice.

Helping your teen establish credit is just the start. Maintaining good credit requires responsible habits, which can take time to develop. But learning early might help them reach many future milestones. 

For next steps, you could add your teen as an authorized user on your credit card account. Or you could learn more about student credit cards from Capital One. Your teen can even see whether they’re pre-approved before applying. It’s quick and it won’t hurt their credit scores.