Getting your credit up and running early in life comes with a number of advantages. If you want to help your kid build credit, you need to give them more just than financial advice.
Showing Them How to Check Their Credit History and Scores
The first thing that you're going to want to do is show your teen how to look up their credit reports from the three national reporting bureaus: Equifax, Experian, and TransUnion. Everyone is entitled to do this for free once every 12 months from www.annualcreditreport.com. After you receive the documents, sit down and go over them together.
Explain what each part of the report means. Most likely, your child has little to no established credit, so there probably isn’t going to be much to look at. But you can explain the different parts of a credit report, and what to look for in the future. Consider showing them your credit report so your teen can see what an extensive credit history looks like. You should also talk about how there may be some differences between the three reports, and how you can have multiple credit scores.
You should also look for signs of identity theft. If there are delinquent accounts that show up on one or more of your teen’s credit reports, and they have never actually opened an account, or seldom use one, this usually indicates that they have unknowingly been the victim of identity theft. While this news may be troubling, it's much better to find this out sooner rather than later. If you discover that fraudulent activity has occurred, you should make an immediate report to the respective credit bureau and walk your kid through the dispute process.
As for their credit score, show them how you check your scores. Whether it be through your lending institution that offers a free FICO credit score check, or by visiting www.myFICO.com and paying a fee, it’s important they know where they should go and how often they can check. Explain to them how credit scores constantly change, how important it is to stay on top of all monthly bills, and the consequences of missed payments.
Establishing a Credit History
Once you determine that your teen is starting with a clean slate, you can begin to help them establish a strong credit history. There are many different ways you and your kid can work together, but one of the easiest ways to do this is by making your kid an authorized user on a credit card account that you have.
This is only a good option if you have good credit, yourself, and you can add them to a secured or unsecured credit card account. If this is the case, your good credit and payment history is going to boost their credit score. Just make sure you set some ground rules that your kid needs to follow if they receive a card. Many credit card issuers are going to allow you to set a credit limit on this type of card. If not, you should set one.
If you have a store credit card, you can also add them as an authorized user to these types of accounts. These lines of credit can typically only be used at the issuing store, so they’re usually easier to get than regular credit cards. The only drawback is that these cards tend to carry very high interest rates. So, make sure that your kid knows that the card should be used sparingly and paid off each month.
Thinking of Helping Your Kid Out with a Car Loan?
Getting your kid or teen on the credit wagon can be tough if you don’t start early. It takes years to build up a solid credit history from the ground up, but you can help them establish a history well before they turn 18.
If you’re interested in getting your son or daughter started in the world of credit, and they recently turned 18, why not co-sign for a car loan? At Auto Credit Express, we can help you find financing by connecting you to a dealership in your area. It's easy to get the process started. Just fill out our quick and secure auto loan request form and you'll be on your way to building a great credit future for your kid!