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TLDR

  • What ways can I help my child to build their credit now?

EDIT 2

This edit is more details for those seriously curious why I am doing this (there have been a couple more notes on the question). It is quite long, so skip over this if you are not looking to give me a comment/answer about how I am ruining my daughter by trying to help her... this is just an FYI to why I want to give my daughter a boost. Answering the question with why this is a bad idea is not beneficial to me...While your thoughts may be different, this is the thought process for my actions and why I will do whatever I can to give my daughter a head start:

My parents taught me financial responsibility at a very young age. There was a product available when I was growing up called ParentBanc (I think it was called) that they used. It was a checkbook with real checks. When I wanted to buy something I did not have the cash for in store I wrote a check to "the bank" in the store and my parents would accept the check and give me money or pay for it. I would notate in the registrar my check number and amount and all that to track my account balance. I would have to balance my checkbook every month, order new checks, etc.

If we wanted something we could not afford at all we would have to type up a letter requesting a loan (amount, what we wanted, when it would be paid back, etc.) and sometimes it would come back denied. The entire process of checks and loans and everything was all extremely annoying of course!

Beyond that I also had a program in ROTC called NEFE (I can not remember what NEFE was an acronym for) that also taught financial responsibility. This went even more in depth explaining retirement accounts, credit scores, balanced budgets (envelope system and all that), and many other things. I enjoyed that program so much I still have the work book at home to teach to my daughter when she gets older.

So... from all this I was more than prepared for my financial future. Yet... when I tried to get my first loan from the bank I was denied. Because I did not have a credit score I was deemed not fiscally responsible, but by any account (other than the credit companies) I had been fiscally responsible for years.

Not only was this a pain (and unnecessary), but even worse was the interest rates I tended to see. Whether you are good with credit or bad with credit a higher rate still costs you money. I don't care if you are great with money or not; that higher rate is costing you money. Even if my daughter is going to be absolutely terrible with her finances in the future I want to help her save money so that once she learns her lesson she can climb out of that debt trap faster.

As annoying as all that ParentBanc stuff was that my parents did with me I am of course grateful for it because I know how to budget my finances and prepare for everything that can be thrown at me financially.

When my daughter gets older I will do everything for her that my parents have done for me. I will prepare her to the best of my ability. If my daughter has better credit and messes up it will not affect her as badly. Just because she stumbles does not mean that she should suffer for the next six to ten years... Whereas if she is great with her finances she will start this race of financial status further along then your children will. Lower interest rates, higher credit score, and most importantly more money in the bank...

If you do not agree with providing your children with the best possible leg up in life that you can, that is fine. Personally I would like to see my child start the race a little ahead and hope that helps to either propel her forward a little bit faster or at the very least make her life a little bit easier with less to stress over. I would like her life to be easier than mine was. I would like to help her avoid the complications and pitfalls that I had to deal with.

Again, if you do not agree or understand why I am doing that that is fine, but your answers about how I am ruining my daughter or whatever are really not helpful.

EDIT

I would just like to mention a few things for anyone else that reads this; things I assumed were kind of understood...

  1. I will take the time to teach her financial management skills. It would be pointless to give her a boost of credit if I planned to throw her out without any money management skills and leave her to learn it all for herself. However, I do appreciate the comments ensuring I did know that before hand.

  2. There is a difference between having credit and using credit. I am not letting my five year old go crazy in Toys"R"Us with a credit card here. If my daughter chooses to get a new card or do anything else in the future that needs credit she will be better off because of the time I have taken to help her. If she never does it will not hurt her...

  3. For those individuals that have no credit history by choice or think that I am "unloving" to my daughter by giving her a boost with her credit as soon as possible - Your comments do not apply to my situation. Thank you for taking the time to post, but: I love my daughter, I know the struggles I dealt with growing up without credit, I am not (a do not foresee becoming) rich enough to survive without credit, and as I mentioned previously she can use the boost I have given her or choose not to when she grows older.

  4. @mhoran_psprep Thank you for your comment about ensuring I keep an eye on her credit reports to keep them accurate. I will add that to my own yearly check!

ORIGINAL POST

Back in the day there were all those horror stories of parents opening cards in their kids' names and ruining their credit, but I would like to start building my kid's credit now or ASAP to help her. Everything I have tried to do (open her an account / add her as an co user / etc) they have needed a signature from her and she is four...

Are there other options available that I have not thought of yet? Has anyone else tried something similar? I do own a small business... could I potentially do something with that?

  • 3
    Keep in mind that you will have to protect her credit. The presence of that credit file means it could be caught up in any of those breaches, which could result on identity theft before they understand what is even involved. – mhoran_psprep Dec 3 '17 at 20:33
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    @pojo-guy If you have loans or cards or any other sort of digital presence financially - you have a credit rating. You have no choice. If you have somehow survived using only cash then more power to you, but that seems like a headache... – Odin1806 Dec 3 '17 at 21:47
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    "The result saving up and paying cash is that I am on the earning side of the compound interest equation rather than the spending side." That's the stupidest thing I've read this month, since it's perfectly easy to have a long credit history and still be a saver and earner instead of spender. – RonJohn Dec 4 '17 at 2:08
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    @pojo-guy Aside from non/semi-financial users of credit scores [used by employers in some jurisdiction, etc.], the single biggest purchase of most people's lives is their house. Very few people are able to buy a house in cash, and depending on a variety of factors, it is often a fine financial choice to buy a house with some amount of mortgage. Lacking a credit score prior to having a mortgage can prevent you from either being approved, or from having the best rate. A typical 'clean' way of having a good credit score without paying interest is paying off your credit cards in full every month. – Grade 'Eh' Bacon Dec 4 '17 at 15:20
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    @Odin1806 One other thing to note is that it doesn't take that long to obtain a good credit score. Two years ago I didn't have a credit report. Through careful management of two secured loans and a secured credit card, my score was slightly over 750 when I checked back in August. I think your general idea of teaching her financial responsibility is fantastic, but I don't think it's necessary to try to start a credit report so early. – seanr Dec 5 '17 at 3:01
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There are a number of different ways to help your child build credit. First and foremost is to teach them about responsible credit use. For example, you could set up a small game on her allowance (if she gets one) where she can borrow money from you in advance, but if it's not paid back on time, you tack on an extra quarter for every dollar she owes. (Yes, 25% might be outrageous, but it's just a game).

Another thing you can do - assuming you are responsible with credit - is to add your child as an authorized user on your credit card. Now, if you do this, you obviously don't have to give her the credit card to spend. Most banks will allow you to add your child as an authorized user - just call and ask. However, given that she is only 4, this may be extremely difficult. Usually the minimum age is 13. All the banks that I've used, report the credit lines activity to the credit bureaus for authorized users. So, if you're responsible with credit, you can help your child build credit, while helping you!

Bottom line is that it is all about educating her on how to handle money responsibly. There's no rush on building credit (although it can't hurt). If you can give her the educational foundation on how to handle money responsibly, then that'll be one of the biggest and most beneficial things you can give her.

  • Thank you for your answer. This is the best answer so far. I actually called Chase today and added my daughter to both of my current cards and went on ahead and opened a new card with Bank of America as well. Each of those informed me that they report authorized users to all three bureaus. Till this point I think I only talked to my local bank and USAA and gave up having her added. That second link was a great help. My hope is that at the very least she will now have three accounts that have been active and current for 14 years when she turns 18! – Odin1806 Dec 5 '17 at 2:13
  • @Odin1806 Also note that usually CC companies attribute the entire duration of an account being open when they report, so if you've had your chase card(s) open multiple years, those would also count on her credit history. ie if you've had a chase card for 3 years, when she turns 18 it'll show the chase card has been open for 14+3=17 years. – Jason Rush Dec 5 '17 at 6:21
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There is absolutely zero reason for a four year old to have any kind of credit history. Your credit history is a measure of how well you pay back borrowed money. You do NOT get credit for paying your rent or utilities on time, but do get dinged when you fail to pay them on time if they go to a collections agency.

If you want your daughter to have a good credit history as an adult, then teach her to manage money responsibly. That means spend less than you make (which requires an income, preferably one that involves some manner of work and not just an allowance), pay your bills on time (which is hard at four), etc. There are many ways to model those in a child's life - having a "piggy bank", chore charts with how much they earn for helping, etc.*

A lot of that (in my opinion) is teaching her not to borrow money to satisfy impulsive desires. Teach her to save money to buy things that she wants, and to use cash for purchases. Using credit cards when you don't fully appreciate the mechanics behind them "feels like" free money. You need to be able to understand that the credit card bills are paid out of your hard-earned money and are not magically paid back.

I applaud you for wanting your daughter to have the best opportunities as an adult and not feel the pain that many of us (including myself) did as young adults. If I knew then the pain of paying back student loans, borrowing to buy furniture I couldn't afford, etc., my habits would have been much different. That's what I'm teaching my children.


* Side note: I'm not saying that children should get paid for everything they do - certainly many responsibilities (cleaning their room, helping with household chores, etc.) are just part of living in a house with others, but many activities can earn rewards, which can be either monetary, or privileges, or combinations of both.

  • I know exactly what you mean by saying there is no reason for her to have credit at four years old, but if it is possible for her to have credit once she turns 13, 18, whatever why would i deny aiding her to the best of my ability to get as good of a score as possible to start? She will be better suited to get a car on her own, rent an apartment, get better interest rates when and if she chooses to get a new card for herself, etc. I think the thing many of the comments I have received misunderstand building credit for using credit. It is better to have it and not need it than the alternative – Odin1806 Dec 5 '17 at 1:46
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    @Odin1806 Just also note that in a lot of cases, youths having lower credit limits also keeps them from making as large of financial mistakes when they're younger. If you get them too good of credit history, they are also more capable of being approved for a larger loan for a car/whatever that they may not actually be able to afford and in the long run may hurt them more due to accruing more debt at a young age. Just food for thought. – Jason Rush Dec 5 '17 at 6:23
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    @Odin1806 But remember that the way you build credit is to use credit. If she decides to get a credit card, interest rate should not matter because she should pay it off every month. The only thing that she should intentionally go into debt for is a house. – D Stanley Dec 5 '17 at 14:19
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    -1 for the opening statement. Objectively there are good reasons to build credit history early. Whether the available credit can be put to good use is YMMV, but that doesn't mean we should just close the door altogether. – xiaomy Dec 6 '17 at 4:44
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A reinforcement of @Michael's second paragraph: maintain your own good credit. Then, add your daughter as an authorized user at age 17 "for gas money". (You'll know when she disobeys, because you can log into the card's website and look for charges that aren't yours.)

On the day she hits 18, your good credit will be imputed (EDIT: to clarify... not an exact copy) onto her.

One last time: maintain your own good credit.

  • Your answer might be somewhat misleading, an authorized user doesn't inherit someone's good credit entirely, they just receive some of the benefit of the account(s) they are added to. – Hart CO Dec 4 '17 at 1:44
  • @HartCO that's why I used "imputed" instead of "inherited" or "copied". But authorized users must be impacted by the card owner's credit score. Otherwise, my son's wouldn't have been what it was so soon after turning 18. – RonJohn Dec 4 '17 at 1:49
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    My point is simply that the impact is limited to the account(s) that they are added to, it's not "your good credit" but the portion of your good credit that comes from the account they are added to. So adding them as authorized users on multiple accounts is better than just one. Alternatively, if you had a bankruptcy and poor credit score, but had a credit card with a 10-year history and no late payments you could still help them despite your own poor credit score. – Hart CO Dec 4 '17 at 2:04
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    @HartCO that's interesting. Good to know. (She should still maintain a good credit score...) – RonJohn Dec 4 '17 at 2:09
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Just an FYI to OP, some banks require minimal information to open an authorized user account (i.e. co user). One of my friend has got her 2-year old an AU card recently; it only takes the name and address.

  • What is an AU card? – Odin1806 Dec 5 '17 at 1:40
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    From googling it seems like an Amex card, but in Japan. – Michael Dec 5 '17 at 14:22
  • @Michael thanks. that was my thought, but i was not sure – Odin1806 Dec 5 '17 at 14:43
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    @Odin1806 Authorized user – xiaomy Dec 6 '17 at 4:28
  • @xiaomy totally makes sense as I reread your response. thanks... – Odin1806 Dec 6 '17 at 15:35
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I am sorry but to me, that seems irresponsible at best!

Because:

You should not use credit beyond what you can back up with your reliable, disposable income. A four-year old does not usually have a reliable income.

Before she can rationally understand what paid work, income, insolvency, liquidity and accumulation of interest means, she can not responsibly use any credit and should thus have none.

If you only built her credit, without teaching her how to responsibly handle it you are only setting her up for early overindebtedness. The first step to teaching is being a good example.

Teach her financial planning and saving right now. Start with the credit-thing earliest when she learns about interest in school to give her some real-world application for this dry math stuff.

Better to start college with a $10.000 Savings account and some ideas about frugality, and built credit from there than to start with a credit line of $50.000 and the idea that money is free when you know how to game the system.

  • Please see my new edit (edit2)... Also I have no clue how you were able to start your life with 10k in savings. I don't want to stereotype but your response seems like another silver spoon response. I started with maybe a couple hundred saved out of high school when I joined the military and struggled to get a $500 secured credit card after arriving at my first duty station six months later. – Odin1806 Apr 12 '18 at 17:58
  • @Odin1806: Did not say that I had anything to start with, but thats what I would aim for with my child. Seems to me with all this efford you planned to put int this credit-building you cuold also start a small savings accout, mabye an index fund as soon as there is enough - 15-20 years are a nice timespan to accumulate interest If you/she puts down $30 a month she will get there (If its less, its less, still more than nothing) When she gets in her teens, that money is easily earned by mowing the neighbours lawn. – Daniel Apr 12 '18 at 18:29
  • Ah, gotcha. Though, if we both did not stat with that, and many others I would assume don't, isn't it safe to say despite my efforts she wont? We started a savings account that does the round up savings plan which in a couple years was already up to $800. Unfortunately a family member was in a bind and we needed to pull that cash for them so now I think that account is back under $100... I am hopeful I will be able to throw some extra in it in the coming months/years to "pay her back" but... And as I state in my edit I do plan to teach her fiscal responsibility, but if I can do more, I will. – Odin1806 Apr 12 '18 at 18:51
  • @Odin1806: I can very much relate, though this puts up another question: Once you have that line of credit for her, will you really not use it when another family member has trouble? I for one would have been much better of if I only knew how to budget when I was twenty. Luckily I never financed anything except a house. But it was amazing to see how much my wife saved during her first years of work after university, because she was used to live on a really small budget. – Daniel Apr 12 '18 at 19:50
  • @Odin1806: Although I don´t agree with everything there Mr. Money Mustache offers some interesting ideas on the frugality and savings front. – Daniel Apr 12 '18 at 19:50

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