Sara Says: Kids Can Build Credit, Too

As adults, we know how important our credit score can be.  Many institutions, from lenders to potential employers, use this number to judge our level of responsibility.  Unfortunately, youth that are just starting out rarely have a history of credit.  I get a lot of questions from parents regarding how to help their children build credit without building debt, so I’ve compiled some tips and resources I think may help.

http://youtu.be/wBPPG_DAa2Y

Tip #1: Open a checking account for your child in his/her name.  Even though bank accounts don’t directly affect credit scores, by allowing your youngster to manage a check account, he/she will be building a relationship with a bank.  This connection will pay off when your child applies for a credit card or loan because the lender may use account history as a way to determine credit worthiness.  Additionally, a positive relationship with a bank may boost your child’s chances of being approved for a loan within that bank.

Tip #2: Help your child get a secured credit card.  Most of the credit card offers we see in ads are unsecured, meaning there isn’t any collateral tied to the loan and the risk to our financial health is great.  However, Young Americans Bank offers secured cards that require a security deposit, making them much less risky.  The deposit is paid at the time the card is opened, but doesn’t count towards monthly payments.  That means your kiddo will be borrowing money and paying it back just like anyone else with a credit card, but if they default on the payment, then we use the deposit to cover the balance instead of slamming their credit score.  Check out this article for more information.

Tip #3: Allow your youngster to take out a loan.  Borrowing money from Young Americans Bank can be a great way to build credit.  Minors will probably have to bring a co-signer to make everything official, but by being the primary name on the loan, kids are able to build their own history of credit.  Of course, you’ll have to weigh the costs of interest with the benefits of building credit, if you choose this route.

If you think your child is too young for any of these options, check out this site where they can watch fun, relevant videos related to credit.  Also, come talk to a Young Americans Bank teller – We offer all three of these credit-building activities to kids as young as 12 years of age.