Teaching your teen about money management, an essential life skill, can set them on a path to financial success. A crucial aspect of their financial literacy is understanding credit. Building credit for your teenager might not be something that many parents think about, but starting early can give them a head start in establishing a strong credit history.

Here are a few practical and responsible ways to help your teen build credit and develop healthy financial habits that will serve them well in adulthood.

  1. Educate Them. Before diving into credit-building strategies, it’s important to educate teens about what credit is and how it works. Explain that credit is borrowed money that needs to be paid back with interest. Emphasize the importance of paying bills on time and avoiding debt beyond their means. Discuss the long-term negative impact of having a poor credit score on future financial opportunities such as higher interest rate loans, fewer loan options, and often a more difficult time renting an apartment. In some cases, a poor credit score may count against you in a job hunt. According to a 2016 CareerBuilder survey, 72% of employers said that they run a background check on every new hire, and of those, 29% include a credit check as part of the evaluation process.
  2. Add Them as Authorized User to Your Credit Card. While the minimum age to get a credit card of your own is 18, an authorized user on a credit card account can often be as young as 13. Adding your teen as an authorized user to your credit card account is a popular way to establish and build credit history. As an authorized user, they will receive a unique credit card that is linked to your account while benefiting from your good credit history. Since you, as the parent, will be the primary account holder responsible for all payments, it is important to monitor their spending together and ensure they understand the importance of responsible credit card usage. Most credit card companies will allow parents to set spending limits to ensure that charges do not exceed what a household can afford.
  3. Get Them a Secured Credit Card. Another option for building credit for your teen is through a secured credit card in their name. A secured credit card is linked to a parent’s account and requires a cash deposit, which helps lessen the possibility of excess spending and debt accumulation. Secured cards have lower credit limits determined by the amount of the deposit. Using a secured card allows teens to learn responsible credit card usage with limited risk. Paying the bill in full each month, avoiding impulse purchases, and keeping track of spending will all help your teen learn financial responsibility and avoid the pitfalls of financial mismanagement. These secured cards can be a steppingstone towards a card with no deposit, higher credit limits, and more features. Creditkarma has a list of the best secured cards for 2023.

Teaching your teen about the importance of building their credit will help improve their financial literacy and be a positive step towards helping them achieve both their short and long-term financial goals.