Expert Advice: How to Care for Your Child's Credit

Parents have a long list of responsibilities that range from being a caregiver to being a child's most trusted friend. Fortunately, most parents accept these many responsibilities because they know their children are counting on them. However, that doesn’t mean parents have everything covered. They may have forgotten to put one vital thing on their checklist: their children’s credit management.

You might be wondering how you should manage your child’s credit. To provide some insight, we asked credit, finance, and scam experts to explain what they want you to know about your children’s credit and what you can be doing now to give them a solid credit path.

James Garvey, CEO and Co-founder of Self Lender

“When it comes to your child’s credit, there are two things you can do for them that could help them out later in life. First, teach them about credit — what it means, how it works, and how they can build it. Unless they go into finance, this is not something they currently learn at school, even though it could impact their entire adult life. So it’s crucial to teach this lesson at home.

If you have great credit, look into your options for adding your child as an authorized user on your credit card. Many credit card providers allow this, and some don’t even have a minimum age requirement for the authorized user. Your child doesn’t even have to use your credit card to benefit from being an authorized user, so you can wait to give them a physical card until you believe they’re able to manage it responsibly. This means you could start helping your kid build credit before they’re legally old enough to open a credit account on their own at the age of 18.”

Sean Messier, Credit Industry Analyst at Credit Card Insider

“Children’s credit is a topic that’s easy to overlook — after all, how many kids are whipping out credit cards on their own? But, as I’m sure you know, the reality isn’t quite so simple.

According to Javelin Strategy & Research, more than one million children fell victim to identity theft in 2017 alone. Left unaddressed, such issues could be disastrous for a child’s financial future. Fortunately, regularly monitoring your children’s credit can help you keep on top of these types of dangers.

Your children are unlikely to have credit in their name unless they’ve fallen victim to identity theft. Because this danger is so widespread, be sure to check your kids’ credit reports regularly.

For added security, you can freeze your kids’ credit reports with the three credit bureaus — Equifax, Experian, and TransUnion — to prevent credit accounts from being opened in their names.

Under federal law, inquiring after and freezing kids’ credit reports is free.

Once you believe your children are old enough to start building credit, consider adding them as an authorized user on an existing credit account.

With many credit card issuers, you can add children as authorized users for an existing account, allowing the activity from that account to appear on their credit reports. You don’t even have to give your children authorized user cards if you think they’re too young. Just make sure you always use the account responsibly to avoid damaging your kids’ credit.

As your children grow, be sure to educate them on the fundamentals of budgeting and credit. These topics aren’t always thoroughly addressed in school, and the best way to prep your kids for a bright financial future is by making sure they have the necessary knowledge.”

Smiling Young Man

Todd Christensen, Education Manager at Money Fit and author of Everyday Money for Everyday People

“The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 not only permits American adults to place a freeze on their own credit report, but parents may now do so for their children 16 years old and younger. This would also apply to legal guardians and their charges.

I never recommend that parents push their minor children and even their college-age or college-bound children to get their own credit card. Parents should first consider requesting an authorized user card for their children on the parents’ account. The child does not even need to use the card (or know it exists) to reap the benefits of the parents’ good credit.

Here are my four rules parents should teach their children to abide by before applying for a credit card:

Have regular income for a year.
Create and live by a budget.
Build and maintain a savings fund that would cover your housing, utilities, food, transportation and cell phone bills for three months.
Use a debit card for 12 consecutive months without having a purchase declined or without using overdraft protection.”

Kyle Kroeger, Founder and Money and Personal Finance Blogger at Millionaire Mob

“It's never too early to start monitoring and building your child's credit. I suggest that you don't freeze your child's credit and instead you start building it up as much as possible and as early as possible. This is age-dependent, of course, but as your child enters into teenage years, you should consider adding them as an authorized user to your credit cards. This can teach them proper spending, budgeting, and repayment. Keep a close eye on it over time. You certainly don't want to rack up a large amount of debt. Only allow the amount that you can afford to pay off in full at the end of the month.

“... a parent should educate their kids about credit, including how it works, why it is important, and what it means. Secondly, parents should think about the practical use of their child's credit. Allow for them to have some freedom in putting their best practices forward from what you taught them about the importance of credit. This will help your child stay disciplined in building their credit score through credit mix, a track record of repayment, and sound utilization.”

Mark Huntley, Co-founder of Credit Knocks

“Your child's credit will be very important to them when they reach 18 and as they get older. It will be important to you because if they have good credit, you will never be asked to cosign for loans, apartments, cell phones, or mortgages.

Identity theft of children is very common as these types of fraud can go undetected for years. As a parent or legal guardian, you can freeze your child's credit up until they reach the age of 16. To remove any chance of future problems, it is a good practice to freeze your child's credit at an early age until they are ready to begin using it.

When they reach the age of 16, you can add them to be an authorized user on your credit card accounts which will start building credit history and a credit score.”

Jacqueline Devereux, Credit and Finance Expert at SproutCents

“While a child is not eligible to become an authorized user on an account until the age of 15 and open up an account until the age of 18, they are at risk for identity theft at birth. Children are easy targets and all a thief needs is to get a hold of your child's social security number to start opening accounts. Under the Economic Growth, Regulatory Relief and Consumer Protection Act enacted in 2018, credit freezes are required to be free. You would need to put a credit freeze with all three of the major credit bureaus, but it would be well worth the hour it would take. You can be saving your child years of overcoming bad credit, legal fees, and hours trying to recover their credit.

Monitor their credit reports through the three major credit bureaus. You can check your child's credit report during a freeze. Keep the freeze on until your child needs to apply for student loans."

Steve Weiseman, Lawyer, College Professor, Author, Identity Theft/Scam Expert at Scamicide

“Child identity theft has grown as a problem in recent years. According to Javelin Strategy and Research, a million American children became victims of identity theft last year at a cost of 2.6 billion dollars in total losses to the families. Children have become a prime target of identity thieves who, if they are able to get identifying information on a child, such as the child's Social Security number, can open a credit report on behalf of the child and obtain credit in the child's name. The identity thief never pays back the money accessed through the child's credit and the child is burdened with a bad credit report that can have a harmful effect on the child when he or she applies for credit, applies for a job, applies for a scholarship or seeks to rent an apartment. Often the identity theft is not discovered until years after it first happens which makes it more difficult to remedy.

Last September, a new federal law went into effect that permits consumers to freeze and unfreeze their credit reports for free. You can now freeze and unfreeze your credit at each of the major credit reporting bureaus at no cost. However, also important is that this new law was the first national law to protect children from identity theft. Parents can now create and freeze credit reports for their minor children. Child identity theft has become a major problem and until now only 29 states permitted the establishing and freezing of credit reports for children.

Now for the good news and bad news. The good news is that the process for freezing your children's credit reports at Experian and TransUnion has gone well. The bad news, however, is that our dear friends at Equifax, whose negligence exposed Social Security numbers and other personal information of 143 million of us (including myself), have made it very frustratingly difficult to freeze children's credit reports as expressed by Congressman Patrick McHenry of North Carolina at a recent Congressional hearing.

Here are links to the three major credit reporting bureaus with forms and instructions for freezing your children's credit reports:

Unlike freezing your own credit reports, children's credit reports must be done through the mail. Remember it is important to freeze your child's credit report at all three major credit reporting agencies and although it is difficult to do at Equifax, it is still important to do so.

Once you have frozen your children's credit, be sure to keep the PIN and information on how to unfreeze your credit reports in a safe place.”

Leslie H. Tayne, Author of Life & Debt and Financial Debt Resolution Attorney at Tayne Law Group, P.C

“Unfortunately, children can be victims of identity theft. This is becoming more common because it is more difficult to detect. If there haven’t been any signs of suspicious activity with your child’s credit, you may want to check their credit for the first time around the time they turn 16. However, if there have been red flags — credit card mail or phone calls for your child, for example — you may want to check their credit report. You can request a report from any of the three credit bureaus (TransUnion, Equifax, Experian).

Children under 13 should not have a file with the credit bureaus, so if your child has a file, identity theft has likely occurred. As a result, freezing your child’s credit may not be a bad idea. This was not an option until last year when the federal government signed the Economic Growth, Regulatory Relief and Consumer Protection Act, which required the credit bureaus to issue free credit freezes for children under 16. Freezing your child’s credit can be a hassle, particularly if your child doesn’t have a credit file yet, but it may be worth it to prevent identity theft that could go undetected for years and have a major impact on your child’s financial situation when they are finally looking to use their credit.

Teaching children about credit should begin at a relatively young age. When children may not understand the concept of credit, start by introducing the concept of having to pay back borrowed money. As they get older, introduce the idea of paying back more money than you borrowed to start working in the concept of interest. The more children understand the basic concepts at the foundation of credit, the more prepared and responsible children will be when they are ready to have their own credit cards.”

Freddie Huynh, Vice President of Credit Risk Analytics at Freedom Financial Network

“First, understand when a child would have a credit report. Some minors have credit reports because parents have added them as an authorized user on a credit card account. Others could be joint account holders or have a small bill (like a cell phone bill) in their names.

Adults and minors older than age 14 can request free credit reports once per year from AnnualCreditReport.com or by calling (877) 322-8228. If no reports exist, the child’s credit has never been used — a good indicator that there are no problems. When reports do exist, parents or guardians and teens should review the reports together to make sure they contain accurate information. If there are any errors, follow the directions for correction on each credit reporting agency’s website.

If a child starts receiving credit card or loan offers in the mail — or even collection calls — that is the biggest warning sign of possible identity theft. Others could include a child receiving a notice from the Internal Revenue Service about unpaid taxes, or denial of government benefits (as applicable) because the Social Security number has been used. Sometimes, identity theft with a child goes undetected until s/he applies for a driver's license or bank account. At that time, they learn that their Social Security Number has been used with another name.

Never share your child’s Social Security number. If you are asked for a Social Security number for identification purposes, whether at school, a doctor's office or other, ask if you can use only the last four digits, or see if you can identify the child in some other way.

Be very careful with foster children. They can be at greater risk of identity theft, as their information passes through many hands. In 2011, Congress passed legislation requiring child welfare agencies to help foster kids check and repair their credit when they turn 16.

If you believe your child is a victim of identity theft, respond quickly. Contact each of the credit bureaus to report the fraud, and ask at least one of them to place a fraud alert on the account (one company will contact the others). You also should file a fraud report with the Federal Trade Commission.

Consider a credit or security freeze if a child already is a victim of identity theft. A credit freeze, arranged with each of the three main credit reporting agencies, shuts access to an existing credit file, making it impossible for anyone to open a credit card or loan using a Social Security number. Find more at www.identitytheft.gov.

In addition, parents can proactively do a credit freeze for a child. If the child has no credit file, the credit bureau would create a file in order to place a freeze on it. In general, this is recommended for this reason: If someone tried to apply for a loan using a child's stolen (but unfrozen) information, the lender would be informed that there is no credit history, and that the applicant is a minor. This could result in the fraud being reported. But with a freeze on the account, the lender would never be informed of attempts to use the number.

What can parents do to help their young children with credit:

Involve children of all ages in household budgeting. Long before kids even know what credit cards are, through high school, parents can involve them in household budgeting. Even young children can participate, since a good budget starts with setting family goals. Those goals might range from sending a child to college to taking a vacation to purchasing new outfits when school starts. List and prioritize the goals, then let those goals guide the budgeting process. When it becomes more about achieving goals than limiting expenses, kids start to learn that they need to make choices and that they probably can’t have everything they want. Without these basics, they will be unable to manage credit wisely when they are older.
Help kids find ways to earn money, from early elementary school through high school. Talk with them about what that means, and how to use money they earn. Children in elementary school might earn allowance money through doing household chores. Older kids can babysit, take care of a neighbor's pets while they are on vacation, take care of someone’s yard, or shovel snow. When old enough to get a real job, parents can help and support them. Chances are that kids will receive at least some payment in cash and some in checks, which can help them understand these concepts. That’s a prerequisite to learning about credit cards and how they work.
Don’t wait until kids get their own credit cards to learn how to make spending decisions. Help children allocate the money they earn — even if it's a small amount of allowance money — to spending, long- and short-term savings, and charitable contributions. Let them make some spending decisions while young, so they can learn from their mistakes while the effects are harmless.
Explain interest. When children are around age 10, parents can start to explain interest. Parents can help children open a savings account, explain how compound interest works, and show them how their saved money grows. Or, if kids want to borrow money to buy a toy or other item, offer to lend it to them, with interest, and explain the effects. Later on, when they get a credit card, they will much more easily understand the problems in carrying a credit card balance.
Walk the talk. At every age (beginning with infant and toddler years), remember that actions speak louder than words. As with every area of life, kids will pick up financial habits from their parents. If you spend like it's going out of style, you’ll be teaching this kind of money management to kids. Instead, figure out — and talk about — ways to live within your means. Maybe it starts with small, everyday habits, such as carrying a water bottle instead of buying a fast-food drink, or cooking at home regularly. Incorporate small measures into your daily life, and they will pay off with your kids — literally.”

The bottom line

Being a parent obviously comes with many responsibilities. Managing your child’s credit should be made a priority on your long list of things to do. If you follow this expert advice, do your own research, manage your own credit, and actively try to stay on top of your child’s credit security and education, you will have a better chance of creating a strong financial foundation for your child.

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