How Teens Can Build a Credit History

By Dawn Handschuh, Personal Finance Writer Archive

A winning smile may have gotten them by as a toddler, but by the time your kids are teens, they should start building a solid credit history. Every young adult should. Why?

• To get the lowest rates on car loans, student loans and credit cards
• To apply for certain jobs, especially those in law enforcement or financial services
• To rent an apartment
• To get the utilities turned on

Still, you may wonder: How does my child demonstrate she's a responsible borrower if lenders haven't loaned her any money yet?

Here's how to help your children get off on the right foot.

Build Credit History with Secured Credit Cards

Secured credit cards require a cash deposit that functions as the credit line for the account. You can only charge up to what you paid upfront. Stay within your limits, and the bank may increase your credit line without requiring additional deposits.

Secured credit cards are excellent tools for young consumers because they can't exceed their spending limit. But interest rates are typically high.

Use "No-Credit" Credit Cards to Establish Credit

Some issuers consider your general financial situation and income more than your credit history report. Store credit cards may be easier to obtain than a major credit card.

Establish Credit with Student Credit Cards

Some banks, often those near universities, offer cards especially designed for beginners. Also try credit unions.

Build Credit With Authorized User Cards

Naming your teen an authorized user of your card means you remain responsible for payments. This lets your teen establish a credit history by "piggybacking" on yours. 

Don't do this if you have a bad credit history, though, because it'll negatively impact both your credit scores. And if your teen overspends, both your credit scores could also be damaged.

Remind your child that the goal in getting her a credit card is to establish healthy habits early and that a good credit history will serve her well in the future. Choose the card that best fits her maturity level. If she overspends, don't bail her out. Let her make mistakes now and learn from them.