How a Teenager Can Start to Establish a Credit History

You can give your child a head start when it comes to building credit history, even as a teenager. Learn how to establish credit early and the benefits of doing so.

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As a parent, you work hard to prepare your child for the future in many ways. One way to set your child up for success later in life is to teach them about the importance of building good credit. Better yet, you could consider starting the process early by helping your teenager establish credit history while they are still young.

Building good credit history as a teenager could make it easier for your son or daughter to rent their first apartment, purchase a vehicle, open a credit card, or qualify for loans when they're ready. A well-established credit history might also lead to other perks, like the opportunity to save money on utility deposits, mobile phone contracts, and even car insurance.

When building credit from scratch, however, it's important to approach the process the right way. Otherwise, you risk running into problems you could otherwise avoid. And if you're trying to help a teenager establish credit history for the first time, the process might be a bit more complex than usual due to their age.

Nonetheless, building credit as a teen is possible. Here's what you need to know.

How Old Do You Need to Be to Establish Credit?

You don't need to be a certain age to begin establishing credit history with one or more of the major credit bureaus—Equifax, TransUnion, or Experian. Yet before a person can legally open an account in their own name, they must be at least 18 years old.

Additionally, if minors have established credit reports, the credit reporting agencies restrict access to them in an effort to prevent child identity theft. To check the credit report of a minor, a parent must fill out a form requesting the report and send in documentation verifying their identity and relationship to the child (e.g., driver's license, minor's birth certificate, minor's Social Security card, etc.).

It's also important to note that just because a teenager established credit history doesn't automatically make them eligible for a FICO® Score. Before a FICO Score can be generated, their credit report must satisfy the following criteria:

• The credit report has at least one account that's been open for six months or more.
• The credit report has at least one account that's been reported to the credit bureau in the last six months.
• No indication of deceased on the file.

A single tradeline or multiple tradelines can satisfy both conditions above.

How to Build Credit as a Teenager

Establishing credit history as a teenager can be complicated for multiple reasons. Yet there are a few ways you can begin building credit even before your eighteenth birthday.

1. Credit-Building Products for Teens
   As mentioned, you need to be 18 or older to legally open a credit account on your own. But there are several credit-building products available online for teenagers that could help you start establishing credit at a younger age.

   Depending on the service, a company may begin tracking your teen's financial habits through a savings instead of a borrowing relationship. Then once your teenager turns 18, he or she may be able to opt in to share any previously established credit history with the major credit bureaus.

2. Authorized User
   Another solution that might help your teenager establish credit history is by becoming an authorized user. If you already have well-managed credit card accounts established, you could consider adding your son or daughter onto your existing account as an authorized user.

   When you add your teen to an existing credit card, the card issuer may report the activity for the account to the credit bureaus for both you (primary account holder) and your child (authorized user). If this happens, your teenager could establish credit history and a FICO® Score even before he or she is old enough to qualify for credit in his or her own name.

   If the credit card does show up on your teenager's credit report, the way you manage the account will determine the impact it has on your son or daughter's credit history and score. Being an authorized user on a credit card with late payments and a high credit utilization ratio could damage your teenager's credit history and FICO® Score. Yet becoming an authorized user on a card with good payment history and a low credit utilization ratio may have the opposite effect.

3. Secured Credit Cards and Student Credit Cards
   Once your teenager turns 18, they may be old enough to open other forms of credit. At that point, they will need to find lenders that are willing to approve them for financing based on their existing credit history (if applicable), income, and other factors.

   Secured credit cards could be worth considering in this situation. When you open this type of account, you make a security deposit with the credit card issuer that's typically equal to your credit limit on the account. As a result, there's a lower level of risk involved for the issuing bank. Student credit cards may also work well for 18-year-olds who are looking to establish credit for the first time.

   It's also important to point out that the Credit CARD Act of 2009 states that you must have a sufficient, independent source of income to open an account on your own until you're 21 years old. Otherwise, you'll need to add a co-signer to your credit card application. So, even at the age of 18, you may not be able to open a credit card in your name alone.

Bottom Line

No matter how you decide to help your teenager establish credit history, it's important to teach good credit management lessons to go accompany those accounts. Even as an authorized user your teen can learn important habits to carry into adulthood.

For example, you can teach your teen the importance of never charging more on a credit card than they can pay off each month and why it's critical to always repay credit obligations on time to protect their FICO® Score. It's also helpful to show your teenager how to check their credit reports and FICO Scores to make sure they protect the good credit they're working to establish.

Get your FICO® Score from FICO, for free. No credit card required.

Michelle Black

Michelle Black, Founder of CreditWriter.com is a leading credit expert, financial writer, and speaker with nearly two decades of experience. Her work has been featured with major outlets such as Forbes, Reader's Digest, and U.S. News and World Report.