Teens aren’t usually employed until later in their years and they can’t build credit like employed adults can. However, there are ways that can teach your teen how to build your credit score fast.
- Get a Prepaid Credit Card
Getting a prepaid credit card is a great way to start things off. It will put a limit on your teens’ spending habits and allow them to work within a budget. That will teach them financial responsibility and the value of money. This is also a safe way to help your teens spend as much as they want. Even if they want to spend on luxuries, you’ll be safe with the knowledge that they can’t exceed a limit.
This will help them build credit without gathering any debt. There are a few downsides to this though. You may be asked to pay a fee to maintain the account. Prepaid card holders also don’t have to report spending activity to the credit bureaus. That technically means that your teen won’t be building a credit history with a prepaid card.
Use Low Limit Cards
Make sure that you use low limit cards here. Remember that you’re showing them how to be responsible. Getting them a $10,000 prepaid credit card won’t teach them that. Start them off with a $300 prepaid card and if they can learn to spend that responsibly, raise the limit.
- Open a Checking Account
A lot of banks and credit unions offer minor or student checking accounts. They offer lower fees than even standard accounts at regular banks. If you allow your teen to open a basic account with checks, they will grow accustomed to deposits and withdrawals. You may even allow them to add a debit card to the account when they are ready. This will allow them to start early without a credit card. It’s one of the best ways to build your credit score.
- Get a Job
Nothing shows a person the value of a dollar than hard work. Getting a job, even if it’s a summer job or an internship, will show your teen the value of money. This will allow them to be more responsible and spend what they earn more sparingly. That will allow them to get ready to build a credit history. So that when they finally do, they will think about budgeting and paying their bills rather than spending on luxuries.
- Get Added as an Authorized User
If you add your teens on as authorized users to your own credit cards, they’ll begin building credit histories automatically. Since the purchases they make will be in their name, they’ll benefit from your credit score, but build their own.
Also, if you want to be very careful about it, you can just add them on without giving them the card. In case of a late payment, your credit history will not take a hit.
- Automate Payments
This is always number one on the list of ways on how to build your credit score fast. Automating payments gets rid of the hassle of paying all your bills on time every month. You’re never in danger of missing crucial payments which can affect your credit score. Teens are tech savvy any way. Using apps or internet banking for this will be right up their alley.
You’re also never in danger of losing out on any subscriptions or essential services. This is the bedrock of financial responsibility in the credit world. 35% of your credit score comprises of your payment history. That’s the largest chunk of your score and hence, you’re more liable to take a big hit if you miss a payment.
Your due date and the date that you pay your bills is different on your credit report. If you are somehow not able to make a full payment by the due date, then you should consider splitting payments. If you make partial payments before the due date, this will raise your credit score. Teach your teen this hack in case they ever fall behind on their bills.
These 5 tips will help your teens build credit. It will prepare them for the big, bad world of finance when they finally become independent.