As your child reaches their teens, they should start thinking about their future. Credit building is an important part of it because a strong profile can open many doors, so you’ll want to get your child interested in it as soon as possible.

This task might be somewhat challenging—you’ll have to cover several topics that aren’t particularly digestible to children. To give you a helping hand, this guide will clarify what credit scores are and what kids should know about them. You’ll learn how to explain credit in a simple, engaging way that will encourage your child to build a strong profile.

Credit Score—Definition for Kids

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While the underlying mechanism of a credit score is complex, the general principle is easy to explain to your child—it’s a three-digit number that shows how responsible a person is with money.

It’s best to focus on the FICO^® scoring model, as it’s the most popular one. Explain to your child that their credit activity will be reported to the credit bureau, which will assign a score ranging from 300 to 850. Scores are grouped into five categories, each assigned a specific descriptive rating:

Score	Rating
300–579	Poor
580–669	Fair
670–739	Good
740–799	Very Good
800–850	Excellent

By the time you explain credit to your child, they’ll have already encountered some form of scoring in school, so you can tell them a credit score isn’t much different—it reflects their responsibility and changes in their spending habits. Smart financial management means a higher score, which can benefit them in numerous ways.

Advantages of a High Credit Score

The best way to get your child interested in credit building is to explain how it can make their life easier. Any purchase involving borrowed funds will require a solid credit profile. 

If your child is still young, you can use an example they can relate to, like buying a new phone in installments. If they’re ready to consider larger life milestones, you should emphasize that a strong credit profile can help them:

• Buy a car
• Get a job
• Take out loans at favorable terms
• Rent or buy an apartment

When your child sees that healthy credit habits can pay off, they’ll be more motivated to develop them. With this mindset, it’s time to teach them what those habits look like.

What Impacts Your Child’s Credit Score?

The FICO scoring model uses five factors to determine a credit score, each having a specific percentage value reflecting its impact on the score. FICO Score 8—the most commonly used model—relies on the following factor weights:

Factor	Credit Score Impact
Payment history	35%
Amount owed/Credit utilization	30%
Credit history length	15%
New credit	10%
Credit mix	10%

How To Explain FICO Score Factors to a Child

Optimizing FICO Score factors calls for sensible spending and smart decisions. You can explain each factor and corresponding behavior as follows:

1. Payment history—A record of past credit payments showing if they were missed, late, or made on time. To ensure a clean credit history, they should make repayments no later than 29 days from the due date. Explain to your child that this factor has the most impact on their credit score
2. Amount owed/Credit utilization—The amount owed is how much you owe each lender individually and in aggregate (total). Credit utilization is how much of your credit limit you are using, expressed as a percentage—e.g., $300 used of a $1,000 credit limit is 30% utilization. Credit card utilization below 30% is good, but below 10% is ideal
3. Credit history length—The age of all credit accounts on the report. The best way to maximize credit history length is to open the first credit account as early as possible 
4. New credit—Encompasses new credit accounts and hard inquiries. Both should be kept to a minimum, as excessive accounts or inquiries signify an inability to manage current accounts effectively
5. Credit mix—The diversity of a credit portfolio. Managing several credit types (e.g., installment and revolving accounts) without issues is a sign of responsibility and high financial awareness

The above concepts shouldn’t be hard to explain—it all comes down to only asking for credit when you need it and using the borrowed funds when there’s no better alternative. Help your child understand that credit should be used as a last resort, and they shouldn’t have trouble maximizing their score.

A bigger concern is how they’ll get access to credit in the first place, as children’s options aren’t particularly abundant.

How Can Your Child Start Building a Credit Score?

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According to the Pew Research Center’s survey, 64% of parents believe their children should be financially independent by 22. Still, only 24% of young adults enjoy such independence. Most children rely on their parents for financial support, which goes beyond receiving an allowance.

Parents typically play an active role in their children’s credit scores in the beginning because credit products aren’t easily accessible to them. Because of the CARD Act of 2009, young adults under 21 can only get a credit card if they demonstrate an independent ability to make payments. If not, they need a financially independent co-signer over 21 who will share the account ownership.

A secured card might be more accessible because it puts less risk on the lender. The way it works is quite simple:

1. Your child pays a security deposit
2. The bank issues a credit card with the limit typically being the same as the deposit
3. The child uses the secured card as any regular credit card

The downside of secured cards is that they often come with a high annual percentage rate (APR). You should explain to your child that the APR makes a significant difference, as it’s the cost of using credit funds. A high APR means higher payments, so it may be harder to repay the debt.

The above options are reserved for legal adults. Minors can’t get credit independently at all, so you’ll need to jump-start their credit profile.

How To Help Your Child Maximize Their Credit Score

Source: Andrea Piacquadio

As discussed above, credit history length impacts your child’s credit score, so starting early can be a significant advantage. Minors can’t get credit products, so many parents decide to add children to their credit cards as authorized users.

Doing so would give your child a credit profile before they could start their own. They’ll inherit your score, and your credit files will stay connected. While this seems like a shortcut to your child’s credit profile, it can be dangerous for several reasons:

• Your child will have access to your credit card, but they won’t be held accountable for the debt. If they misuse the card, you most likely won’t be able to dispute any purchases as you willingly made them authorized to use your card
• If you or the child miss or make late payments, both credit profiles will be negatively impacted
• When you remove your child from the card, all credit history associated with it will be deleted from their report, so they’ll be back to the beginning

With the above in mind, adding a child to your card might not be the best idea. If you need a simpler, more effective way to help your child build credit, FreeKick can help.

Use FreeKick To Build Your Child’s Credit and Protect Their Identity

With so many restrictions on minors obtaining credit cards, a service like FreeKick that provides credit building features is the workaround you need. Offered by Austin Capital Bank, FreeKick is an FDIC-insured deposit account that helps you build credit for your child while also protecting the identities of your whole family.

Three Steps for Using FreeKick’s Credit Building Service

FreeKick’s credit building service is available for children aged 13 to 25. Take the following three simple steps to help your child establish a credit history early on in life:

1. Create an Account—Go to FreeKick.bank, sign up for an account, and choose a deposit that suits your budget
2. Set It and Forget It—FreeKick will start building 12 months’ worth of credit history for your child
3. Keep Growing—After 12 months, you can either close the account without any fees or choose to continue building credit for your child for another year

This service gives your child a credit head start of up to five years when they turn 18, which will help them save $200,000 during their lifetime through favorable loan terms and other financial perks.

How FreeKick Protects Your Child’s Identity

Child identity theft happens every 30 seconds, and without a secure identity, your child’s credit profile will be standing on a shaky foundation. This is why it’s important to invest in identity protection when you’re trying to give your children a bright financial future. FreeKick’s identity protection services include:

Services for Minors	Services for Adult Children and Parents
Credit profile monitoring Social Security number (SSN) monitoring Dark web monitoring for children’s personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Sex offender monitoring—based on sponsor parent’s address	Credit profile monitoring SSN monitoring Dark web monitoring for personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Lost wallet protection Court records monitoring Change of address monitoring Non-credit (Payday) loan monitoring Free FICO® Score monthly FICO® Score factors Experian credit report monthly

What FreeKick Costs

FreeKick offers two pricing plans:

FDIC-Insured Deposit	Annual Fee
$3,000	$0 (Free)
No deposit	$149

With both plans, you get:

1. Credit building for six children aged 13 to 25
2. Identity protection for two parents and six children aged 0 to 25

Say goodbye to credit card hassle and help your child establish a good credit profile—sign up for FreeKick today.

Featured image source: Julia M Cameron