26 Feb Helping your child build good credit
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Q. When I was a kid, my dad made me an authorized user of one of his credit cards, so I could benefit from his good credit history. It worked — mine is great — and my credit history actually goes back before my birth! Anyway, I was thinking of doing the same for my kids, but I’ve heard the rules have changed. What can I do to give my kids a leg up?
A. Kind of you to try to help your children to build a good credit history.
Before you make any moves with your own cards, it’s time for a sit-down with your kids.
Make sure they understand how credit works before you ever put plastic in their hands.
Once you’re comfortable that your kids will be responsible with whatever spending limits you’ve put on them — because you will be responsible for any charges — it’s time to call your credit cards.
It’s harder to find a major card issuer that will issue a joint account, said Gerri Detweiler, director of consumer education for Credit.com.
So making your child an authorized user on your own account may be the way to go.
Detweiler said making your child an authorized user will help with the child’s credit score, but exactly how much it will help is unknown.
“A few years ago FICO was going to stop counting authorized users altogether because of scammers who were using that technique to build someone else’s credit and steal their identity,” Detweiler said.
But FICO was unable to make that change, she said, because of the Equal Opportunity Act, which requires, in the case of spouses, that authorized user accounts count for credit scores.
She said FICO has indicated that it has adjusted its credit scoring algorithm, but it doesn’t publicly share the details.
Still, Detweiler said making your child an authorized user on your card will start a credit history for your child, and the credit history is one of five main factors that contribute to a credit score.
“You’re giving them a chance to build a well-established credit history at a young age,” she said.
One word of caution, though: If this card is the only one your child has, and if the card has a balance, you’ll need to keep an eye on your child’s “credit utilization ratio,” which compares outstanding balances to available credit. That’s an important factor in a credit score. If it looks like your child is using too much of his available credit, it will be reflected negatively on the score.
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