What’s the Best Way to Build Credit for Teenagers?

What’s the Best Way to Build Credit for Teenagers? article image.

Establishing credit and learning to use it wisely when you are a teenager can make the transition to adulthood much easier. As a parent, there are a few things you can do to help your teen build a positive credit history.

Add your teen as an authorized user to your account.

One way parents may choose to help their teen build a credit history is by adding him or her to their existing credit card accounts as an authorized user. As an authorized user, the teen has permission to use the credit card to make purchases, but they are not responsible for the debt. As the primary account holder, you would still be responsible for the debt.

Adding your teen as an authorized user gives you a chance to show them how to be responsible with credit while helping them build a credit history. When the bill arrives, you can use it as a teachable moment to discuss the monthly statement and the implications of not paying the bill in full.

While many credit card companies do report authorized user accounts to Experian, some may not. If you are adding someone to your account as an authorized user to help them begin establishing credit, you should contact the credit card provider first to make sure they report authorized user accounts to the credit reporting companies.

Cosign for a loan or credit card account.

A teenager who is just starting out may not qualify for a loan or a credit card on their own and may need a cosigner.

One common example where parents may be asked to cosign is for student loans. Cosigning for your teen can be a great way to help them begin building their credit history; however, you should be aware of the risks involved with doing so.

When you cosign on an account for someone, you are agreeing to be equally responsible for the debt and for making sure all payments are made on time. As a cosigner, you are contractually obligated to repay the debt if the teenager fails to pay.

Keep in mind that the account will appear on both your credit report as well as the credit report of the individual you are cosigning for, and the amount of the debt will be taken into consideration when you apply for credit in the future.

Helping your teen learn the importance of good credit now will provide them the tools to manage their own accounts and achieve greater financial success in the future.