Stratagies to establish credit for your child

Tips on getting your kids a good credit score and establishing credit for teens.

One way to establish credit for your older child is to open a secured credit card at a well known established banking institution.

A secured card requires a cash collateral deposit, which becomes the credit line for that account. For example, if you put $500 in the account; you can charge up to $500. You may be able to add to the deposit adding more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits.

One thing to look at when applying for a secured credit card are the terms. Does the secured card have a monthly/yearly servicing fee? What is the interest rate? Are there any conditions or penalties for late payments?

The reason for having a secured card goes far beyond being able to buy stuff online. It's a start for building a good credit history. The reason to acquire a secured credit card is to establish credit. Verify that the issuing secured card company reports to all three of the credit reporting bureaus. If you start getting mailers offering unsecured cards after several months of payments on time, you'll know that the bank is reporting. It may take 3 to 6 months or more to establish a credit history. The longer the secured account is in existance and in good standings, the better the credit score will be.

The second and fastest way to establish credit for your teen is to add him or her onto your existing bankcard as an “authorized user.” Simply call the bankcard company and tell them you would like to add a name to your bankcard as an authorized user. You will need to supply the social security number of the new authorized user to the bankcard company. You do not have to give the child the bankcard, they are simply an “authorized user.” In about 30 days your child will have an established credit history.

This plan can also backfire if the original owner of the bankcard has low or poor credit.

Start establishing credit for your child soon and explain to them the pitfalls of overspending on a credit card. There are five factors that establish a credit score. The two primary factors are 1) have all the payments been paid on time and 2) how long has that credit line been in existence. By establishing credit early the child will have a jump-start on his or her credit history. This will make it easier to purchase an automobile or home with a better interest rate.