First Time Buyer Guide: Should I Get a Credit Card to Help My Kid Build Credit?
This is the latest installment in our First Time Buyer Guide, a regular Monday morning feature designed for people who are just entering the real estate market. Not your first time at the rodeo? You'll find some good tips in here for buyers at any stage! This week, we're talking about the first time buyers of the future: your children. Can you help them establish good credit now so they can get a better mortgage interest rate in the future?
Good question. Good credit can take a while to build, and a history of responsible credit card usage can help. Of course, it could be that in the future, our kids will live in Jetsons-style houses in the sky, paid for by Bitcoin or some other thing the kids are into. (Incidentally, The Jetsons was set in 2062, so there is still time to get all that cool stuff!) But there are a few things to consider before taking out the card in your child's name.
How is your credit history?
If you add your child as a user on your account but don't pay bills on time, your child will be starting at a disadvantage. Part of credit history is the length of time accounts have been active, but whether they've been well-managed is probably more important. A payment that is even a couple of days late can put a ding on your credit score, and start your kid off on the wrong foot.
Are you ready to talk about responsible credit card use with your child and keep an eye on the way they use it?
Adding a child's name to an existing account or opening an account in his name can be a great opportunity to help him learn how to use credit responsibly under your watchful eye. Inexperienced spenders can make basic mistakes that could hurt their credit history.
Is your child generally a responsible kid?
There's a reason you have to be 18 to get a credit card in your own name; it takes maturity. Is your child generally more or less responsible than her peers? Make sure the credit card comes with plenty of conversation and advice and a clear explanation of how credit works.
Does your kid need good credit right out of the gate, or can it wait?
What is good credit good for? Well, usually getting favorable terms on more credit. Will your child need a mortgage at 21 or can it wait? If building good credit early means getting approved for a mortgage that your kid will struggle to pay, what's the point?
Are you ready to take the hit, financially and on your own credit score, if your kid doesn't handle having credit well?
If you monitor the card and keep track of spending and payments, this won't happen. But if you blink and your kid makes a mistake, are you willing to pay the balance yourself or take the hit to your own credit rating?
Authorizing your child as a user on your credit card can be really helpful. If he or she is away at school, it can also be a good way to make sure they can cover emergency expenses (such as new pants when they suddenly grow out of the only pair of khakis they own -- which can happen at 20, believe it or not!). Just make sure you're both ready, and that you both know exactly what you're getting into.