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How Young Is Too Young to Start Building Credit?

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How Young Is Too Young to Build Credit?

Worrying about a child’s health or safety is part of being a parent. But because credit scores have so much influence on our financial futures, many of today’s moms and dads are fretting about their kids’ credit, too.

So how soon is too soon to start helping your child build credit? The answer might surprise you.

You can start building your child’s credit today

You can begin building your child’s credit whenever you want to by making him or her an authorized user on your credit card. Usually, you have to be at least 18 to take on a credit card or loan, which are the conventional ways that people start building credit. But authorized usership is a little different. In many cases, issuers don’t set an age minimum for authorized users, because they’re not responsible for any of the bills.

By using your card responsibly, your child will benefit from the good credit history you’re creating. It won’t have the same credit-building power as being the primary user on an account, but it’s a start. You don’t even have to give your child a card until you feel he or she is ready for the responsibility; simply being the authorized user on paper is enough to do the trick.

If you think it’s overkill to make your toddler an authorized user on your card, there are other opportunities to help when your child is a little older — and they’ll pack more punch than authorized usership, too. For instance, you can co-sign his or her first credit card, which may be a necessity if your child is a full-time college student (as opposed to fully employed in the workforce) at the age of 18. You could also co-sign a car loan or student loan.

Co-signing a loan or credit card that your child is the primary borrower on will do more to build his or her score — but be aware that this comes with risks. You’ll be responsible for paying if your child doesn’t, so be sure you’re comfortable with this possibility before moving forward.

Starting with education is usually best

No matter how you choose to help your child start building credit — if you choose to at all — there’s evidence to suggest that educating kids about money will pay off in higher credit scores later. A 2014 study by the Federal Reserve showed people in states that mandated financial education have higher average credit scores as adults than people in states without this requirement.

Unfortunately, only 17 states require personal financial education, according to the Council for Economic Education’s 2014 Survey of the States. This means you’ll likely have to take the lead in making sure your kids know how to manage money and use credit wisely.

There are a lot of ways to do this, but most experts agree it’s smart to explain the basics of earning, saving and spending before your children become teenagers. Preteens are likely to understand the concept of borrowing and repaying debts, so that’s a good age to start explaining the concept of credit. And before you turn your child loose with a credit card, be clear about how to use it responsibly.

How to know when your child is credit-ready

Parents know their children’s strengths and limitations; let your gut guide you in deciding when to give your child a credit card of his or her own. For some, this comes when kids start driving, or getting to and from school on their own. Most moms and dads want their kids to have a way to pay in an emergency. For others, this comes as late as college, when co-signing a credit product makes more sense.

If you’re still unsure, here are a few signs your child might be ready for a card of his or her own:

  • He demonstrates an interest in building credit.
  • She demonstrates an ability to budget, save and spend money wisely.
  • She knows the basics of money management, and can clearly explain how credit cards work.
  • He is honest about money and is willing to ask questions when he doesn’t understand something about it.
  • She shows maturity in other ways, including an ability to control impulse spending and delay gratification.

Although you can help your child start building credit as soon as today, that doesn’t mean you necessarily should. Educate your children about money first, then consider helping them get on the path to good scores when the time is right.

This article was updated Aug. 8, 2016. It originally published June 16, 2015.

Lindsay Konsko is a staff writer at NerdWallet, a personal finance website. Email: lindsay@nerdwallet.com. Twitter: @lkonsko.