It is not too late to begin building credit, even if you are a child. Children tend not to have many lines of credit but they can start with just one. Teens can start credit building right away. However, the creditor will want to know how often the young person requests new credit. A young person who makes a lot of requests may be considered a greater risk.
Piggybacking
Piggybacking is an excellent way to increase your credit score. However, it will only take you so far. It is important to be responsible with your borrowing and to have good credit habits. You can even have your parent co-sign a loan for you. Be responsible when opening new credit accounts.
Piggybacking on an existing cardholder's account can help you establish credit and raise your credit score, especially if you are young. However, this is not a guarantee so you need to weigh the rewards and risks.
Authorized user
By adding your child to your credit card's authorized users list, you can begin building credit as a young person. The only condition is that your teen follows all rules and uses the card responsibly. It can also harm your credit rating if the teen uses it inappropriately. To avoid this situation, consider a few ways to protect your teen's credit.
Many parents believe that you should start building credit when you are 16. Because that's when most young adults become employed and drive, it's also the best age to start building credit. Building credit at a young age is an important part learning how to manage money, save money and plan for college.
Co-signing
A co-signing agreement for a credit line is an option to help your child get started with credit building. While co-signing on behalf of another person's account can be common, there are risks. If the borrower does not pay, the cosigner will become responsible for the payments. Late payments could affect the borrower’s credit score. This can be a good way to help your child build credit.
Co-signing a loan can place a parent in financial risk. However, it can teach your child valuable lessons about money management and the importance making regular payments. Because of this, your child is likely to have a better score on credit than he/she would otherwise. As a parent, it's important to teach your child about finances so they'll be able to protect themselves in the future.
Secured credit cards
Secured credit cards can be a great way for you to build your credit. This type of card requires you to make an initial deposit. This will act as your credit limit. Unlike unsecured credit cards, you cannot overspend with these cards. It will also report to credit bureaus your payment history.
Secured credit cards can help you build credit even if you're a teenager or pre-teen. These cards are a good option for anyone who hasn't established a stable income. They function just like standard credit cards, but require a security deposit from the cardholder. That security deposit acts as collateral in case the card user defaults on payments. In most cases, the security deposit determines the credit line for the card.
Add a child as an authorized users
It is a great way to help your child build credit. You can keep track of what your child spends his or her money on this way. Before your child makes any charges, communicate your expectations with him/her. You should be aware that major charges can have a negative impact on your credit score and your child's credit rating.
Once you have authorized your child, the issuer can send your child their child's credit card. It will include their name. This is essential because their account will be linked to yours. Any unpaid bills could affect your credit. Your child can be added as an authorized user to help them build a credit history and teach them responsibility. This can be a great way to speed up your child's application for a credit-card once they reach adulthood.