Start Building Your Child’s Credit
Having a good credit score is essential for a financially stable adulthood. Want to rent an apartment, get lower-cost insurance, take out a loan, or purchase a vehicle? You guessed it—you need a good credit profile. Unfortunately, not a lot of young people think about it until it becomes an obstacle and prevents them from achieving their goals.
If you want to step into early adulthood fully prepared or you’re a parent who wants the very best for their children, this is the article for you. In this guide, you will learn:
- What the basics of a credit score are
- How to start a credit score from zero
- Why having a good credit profile is essential
Source: Andrea Piacquadio
What Is a Credit Score?
To better understand how credit building works, you need to get familiar with what a credit score is and what is considered a good and bad credit score. In simple terms, it is a prediction of how likely you are to make on-time payments and repay your debts in full, calculated using information from your credit report, including your credit history. Banks, companies, landlords, and sometimes even employers use your credit score as it helps them determine whether they want to do business with you.
It’s important to note that there isn’t a single scoring model that everyone uses—there are many different ways to calculate credit scores, making it impossible to determine uniform ranges. To understand how credit scores typically range and what is considered good and bad, consult the following table:
Credit Score | Range |
Poor | <580 |
Fair | 580–669 |
Good | 670–739 |
Very good | 740–779 |
Excellent | 780+ |
Let’s take applying for a loan as an example—here’s how lenders typically view the following credit scores:
- Under 580—deny credit; likely to default on a loan or make late payments
- 580–699—subprime borrowers; approve credit, but with higher interest rates and less favorable terms
- 670 and up—prime borrowers; low-risk borrowers who get the best offers and rates
How To Build a Credit Score From Zero
There are several ways to start building your credit score:
- Get a credit card
- Become an authorized user
- Find a co-signer
- Practice good credit habits
Applying for a Credit Card
While it is hard to get credit without having a credit score, one of the options is applying for a standard unsecured credit card. Doing this will be easier if you have an established banking relationship, such as a checking account. This card would be in your name and not tied to a collateral.
You can also apply for a secured card, which might be an easier option when you have zero credit. However, this type of card is not meant to be used forever—you can use it to build up your score to get an unsecured card. Secured cards are backed by a deposit that is typically the same as your card limit, and that’s what makes them low-risk for the lender.
This option is not nearly as suitable for young adults (under the age of 21) as the Credit Card Responsibility Accountability and Disclosure (CARD) Act of 2009 made it difficult for young people to obtain them.
Becoming an Authorized User
If a family member or a partner has an established credit score and a credit card that allows authorized users, they can make you an authorized user of their account, helping you build your score. Keep in mind, though, that this can be potentially risky as both scores will depend on the original account holder’s credit behavior. You should also check whether the financial institution in question reports authorized users to the credit bureau—it won’t be of much help if they don’t.
Parents are often the ones most inclined to choose this option when trying to help their children build a credit score. In case you’re thinking about going down this road, you should keep in mind the following:
- You need to have a good credit score and keep it that way as your child will inherit it
- Missing payments will impact their credit profile as well
- The child may have access to your credit card
- This won’t actually help build your child’s credit score as the complete history will be removed from their credit profile once they get removed as an authorized user
Having a Co-Signer
Financial institutions usually allow having a co-signer when taking out a loan or applying for an unsecured credit card. If your credit score is zero, this is where a co-signer steps in (they need to have a good credit score). Note that this can be risky, especially for the co-signer, as they are responsible for the amount owed in case the child doesn’t pay the loan or credit card payments.
Practicing Good Credit Habits
Having a decent score is not just about establishing it—you have to maintain and improve it, and the best way to do that is by practicing good credit habits. Here are some tips:
- Make your payments on time—Making credit card or loan payments on time should be of utmost importance, especially if you want to maintain a good credit score as it is the primary factor banks look into when you apply for a loan or other products
- Pay more than the minimum amount if possible—This will help banks deem your credit-related activities responsible
- Avoid opening multiple credit accounts close together—Applying for one credit card can cause a small, temporary drop in your score. Opening multiple accounts can cause more severe damage
- Avoid closing your credit accounts (if you don’t have a good reason)—The longer you have a credit account, the more it improves your credit profile. If you have no other option but to close one of your accounts, choose the one you’ve had the shortest amount of time
Source: Andrea Piacquadio
How Long Does It Take To Build a Credit Score?
Generating your first credit score can take approximately half a year—at best.
Your account needs to be open and active for at least six months for your score to be calculated. Establishing a good and excellent score, however, can take years.
The Impact of Establishing a Strong Credit Profile for Children and Young Adults
Having a good credit score is an essential part of building a stable future and transforming plans into reality. Besides making you eligible for various major purchases, applying for certain job positions, and obtaining rental housing, having a good credit score helps you the most when it comes to credit products. It enables you to get:
- Better approval rates—Credit score is the number-one factor financial institutions take into consideration to determine whether you’re eligible for a loan. The higher your credit score, the more likely you are to get approved
- Lower interest rates—Aside from getting you approved for a loan, a good credit score will also help you get better (i.e., lower) interest rates, which will ultimately save you hundreds to thousands of dollars on mortgages, personal loans, and credit card balances
- Better terms—With good credit, you can also get better terms on financial products, such as longer repayment terms or larger loan amounts
- Credit card benefits—Credit card issuers typically offer special benefits to clients with excellent credit scores, such as high reward rates and annual credits on travel and dining
- Identity theft protection—When it comes to identity fraud, no one is safe. Minors and young adults are among the most vulnerable target groups, though. One way you can protect your child from it is by building a credit score for them and monitoring their credit profile. With their identity in use and monitored, it will be more difficult for a fraudster to take advantage of it
“Fraudsters target the use of children’s Social Security numbers (SSNs) in synthetic identity creation, as they are typically not being actively used until the child is in his or her late teens. What makes your child’s information so valuable?
- The (typically) unused SSN can be paired with any name and birthdate to create a synthetic identity.
- The probability of discovery is usually extremely low, as parents typically don’t monitor their children’s identities or credit scores.
The impact of synthetic identity fraud on a child’s future may be profound. It could prevent, or significantly damage, the child’s future ability to obtain employment; acquire student loans; acquire services such as housing, phone service and utilities; or secure a general credit line or bank account. Additionally, once fraud is discovered, the burden of proof will likely be on you to convince the credit bureaus and financial institutions that the SSN belongs to your child and not the synthetic identity. This is because the industry typically assumes the first person to establish credit under an SSN is the legitimate owner.”
Source: Protecting Your Kids From Synthetic Identity Fraud
If you don’t want to deal with credit building and identity protection on your own, here’s what FreeKick has in store for you.
FreeKick—A Reliable Way To Build a Credit Profile and Protect the Identities of the Most Vulnerable
FreeKick—powered by Austin Capital Bank—is a mixture of a subscription service and an FDIC-insured deposit account, which was designed with two major market needs in mind:
- Building a strong credit profile for minors and young adults
- Protecting minors and young adults from identity theft
Building a Strong Credit Profile
Being a combination of a subscription service and a deposit account, the balance of the deposit determines the cost of your subscription plan. FreeKick offers two pricing plans:
FDIC-Insured Deposit | Annual Fee |
$3,000 | $0 (Free) |
No deposit | $149 |
With both plans, you get:
- Credit building for six children aged 13 to 25
- Identity protection for two parents and six children aged 0 to 25
You can open an account and help your child build credit in just minutes—here’s what the process entails:
- Create an Account—Go to FreeKick.bank, sign up for an account, and choose a deposit that suits your budget
- Set It and Forget It—FreeKick will start building 12 months’ worth of credit history for your child
- 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
You can cancel your plan at any time, but keep in mind that no credit will be reported to the credit bureaus if the termination happens before the expiration of the 12-month plan and the account was opened for a minor. The credit bureaus only accept credit reporting for adults, and if you close the account prior to them becoming a legal adult, no credit can ever be reported.
Protecting Minors and Young Adults From Identity Theft
The moment you open a FreeKick account, the chances of your child’s credit identity being subjected to undetected theft and fraudulent activities decrease as it starts getting monitored.
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 |
You can open an account online at FreeKick to start building their credit and give them a head start in life.
Featured image source: Dylan Gillis
Freekick provides a double dose of financial empowerment and security for your whole family. It helps teens and young adults build strong credit profiles and offers identity motoring for up to two adult parents and six children under 25.