When you consider your child's financial future, you're more than likely thinking about saving for college and your ability to provide financial support.
However, building good credit is also really important. For example, do you know if anyone has used your child's Social Security number to open a credit card account? It sounds shocking but it happens every day. (See also: How to Protect Your Child From Identity Theft)
Here's what you need to know to build and protect your child's credit history:
1. Credit reports aren't automatically generated for minors.
If you haven't checked your child's credit reports yet, you're probably wondering if your kid even has one. While each of us is given a Social Security number at birth, credit reports aren't automatically generated. More than likely, if your child is 13 years old or younger, he or she doesn't have a credit history at all. Credit histories are based on the actual credit card and loan accounts you apply for and open in your name along with some other personal information like addresses.
Since most kids don't apply for loans, they don't have credit files (unless they are victims of fraud). In addition, your child could have a credit report if you added your child as an authorized user on one or more of your credit cards. (See also: 3 Steps to Take if Your Social Security Number is Stolen)
2. Getting a credit report for a minor involves a different process than it does for an adult.
To get a copy of a child's credit report, you can write to the individual credit bureaus and ask for a copy. Credit reports of children who are 13 or younger can't be accessed online.
To request your child's report from Experian, you must complete this form and send with it a copy of your driver's license or another government-issued identification card, proof of your address such as a utility bill or insurance statement.
You will also need to send in a copy of your child's birth certificate, social security card, full name, date of birth and address for the past two years. If you are worried about sending information by mail, send in required documents via this link.
3. You should check your child's credit history at least twice per year whether or not they have a credit report.
Because children's credit reports are rarely checked, it can be easier for a stolen identity to go unnoticed, causing more damage over time before the fraudulent activity is discovered. It's also important to check to make sure everything is accurate.
Thus, you should check your child's credit reports, especially if there has been a known data breach at your child's school or insurance provider (or if you've recently sent private information such as copies of birth certificates in the mail recently and it didn't arrive in the destination). Just like with your own credit reports, you can dispute any inaccurate or fraudulent information.
4. As your child gets older, you may want to get your teen a credit card.
As your child ages, established credit history becomes an important an important asset. A teen that has a credit rating may have an easier time getting a job, securing their own private student loans when ready for grad school and getting approved to rent an apartment after their first year of college.
You can add your teen at any time to one of your credit cards with a good payment history (i.e. no missed payments, low usage rate, and a long credit history). They'll adopt your history on that card and the utilization rate.
Thus, you don't want to put your child on a card where you have used more than 25% of the limit or missed a payment in the last couple of years. (See also: How to Help Your Teen Build Credit)
Potential red flags for identity theft
Just like adults, there are some things to look out for that may indicate your child's identity may have been stolen:
- You receive collection notices with your child's name.
- You receive credit card offers or bills in your child's name.
- Your child receives an increased amount of mail in his or her name with various offers or from companies with which your child doesn't have any affiliation.
- You receive collection calls at home from companies asking for your child.
- You receive a statement of benefits or medical bill with your child's name on them that aren't theirs.
If any of these happen you should check with the credit bureaus like Experian to see if he or she has a credit report.
Teaching your child positive finance and credit habits
By checking credit reports and keeping an eye on any financial accounts, you can help teach your child how to stay on top of finances as well as watch over their personal information to look out for identity theft.
As they get older you can talk with them more about it and share with them how to stay on top of things themselves. (See also: How to Teach Your Kids About Personal Finance)
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on December 11, 2017, and has been updated.