How to Build Your Teen's Credit

Help your teen build credit

One of the smartest financial moves you can make is to help build your teen's credit. You're not only teaching your children good old fashioned responsibility, you're giving them a foundation they're going to need. Too many parents see no point in building credit for their children, but one day soon those kids are going to turn 18 and strike out on their own. Regardless of whether your teen heads to college or into the workforce, having a developed credit history gives him a significant advantage over other kids his age.

Why You Should Build Credit For Your Teens

Before I tell you how to build credit for your teen, I have to tell you why you should. You know, really sell you on the idea. If you're already in my camp and don't need to be preached at, feel free to skip to the next section.

Guess what happens when a child leaves home and finds himself out in the great big real world? He needs things. Sure, he may have a job, but his part-time college job or starting position in the company he hopes for a career in isn't going to pay him enough to get the things he needs. Take a car, for example. Let's say your child wants to buy a car. He needs to finance it and make payments. Without an established credit history guess who he's going to turn to to co-sign that loan? You. You love your child, you want to help but co-signing anything is accepting a risk that carries no rewards, you get me?

If you build your kid's credit ahead of time, he won't need to lean on you quite so much when he's finally out of his own. This doesn't just spare you the headache of having to worry that your much-loved offspring's inexperience will leave a few black marks on your credit before he finds his feet financially. It also gives him a sense of maturity and responsibility. He'll be proud of the fact that he can stand on his own--and you will too.

How to Build Your Teen's Credit Score

When you're building up bad credit, you have a variety of options. When you're building your teen's credit, you really have only one: a credit card. Wait. Stop. I can hear you saying to yourself, "But Lee, no credit card company is going to give a minor with no credit history a credit card." And you'd be right. But a credit card company isn't going to give your teenager his first credit-building card: you are.

Most credit card companies allow cardholders to add their children to their accounts as "authorized users."

Build your teen's credit with an authorized user card.

An authorized user isn't a full cardholder and can't make changes to the account like a joint cardholder can, but they do receive a card of their own connected to the primary cardholder's account. Most credit card companies also report the primary cardholder's account tradeline on the authorized user's credit report (Most, but not all--make sure your credit card company reports authorized users. If they don't, adding your child to your account is pointless).

This provides you with a golden opportunity to help your teen build credit. Provided your account is in good standing, your child will have a positive credit report as soon as the credit card company reports the new authorized user account to the credit bureaus.

Warning: Don't Accidentally Destroy Your Teen's Credit Scores

No one is perfect and circumstances can change. If you suddenly find yourself unable to make the payments on your credit card, you've got to contact the credit card company and remove your teen as an authorized user before you default. Missing a payment by a few days will leave you with a fee but no credit damage. Being 30, 60 or 90 days' late on your credit card payment is devastating for your credit scores. If your teen remains an authorized user on your credit card account when that occurs, his credit will suffer as a result of your financial mistakes.

If you decide to strategically default--that is, you make a conscious decision to stop paying your credit card debt rather than merely forgetting--you can and should remove your child as an authorized user first. The tradeline will still remain on your teen's credit report, but the credit card company will no longer update it. This protects your child from the negative consequences of your default while also allowing him to keep some credit history he can build on in the future.

One Tradeline and Your Teen Can Build His Own Credit From There

All you need to do to build your teen's credit is to give him one tradeline. A single authorized user account is enough to create a credit report and score for your child. The longer the account remains open and reporting, the more weight it carries (the age of an account factors into your credit score). Once your child turns 18 he can take the reins and the foundation you've given him and use it to build his credit score up even further. Here are just a few basic credit-building methods a person with limited credit can use to increase his tradelines and, ultimately, his credit scores.

• Student credit cards---These often have lower requirements than standard credit cards and can help your teen build more credit once he starts college. 
• Secured credit cards---Allows your teen to pay a deposit he can then borrow against to build credit. Make sure the credit card company reports accounts to the credit bureaus. Not all secured cards do. 
• Borrowing against his own money--If your teen has a savings account, his bank may agree to give him a small personal loan in the amount he already has in his account (or slightly less if you factor in interest). He can use his savings to repay the loan and build credit. 
• Finance a car--Just about anyone can get an auto loan these days, bad economy or not. Auto loans almost always appear on your credit report. Just make sure to shop around for a decent interest rate. 
• Store cards--Store cards often have less-stringent approval standards than regular unsecured credit cards yet still report payments to the credit bureaus.
• Get a job--Getting a job doesn't directly affect your teen's credit, but lenders are a lot less likely to work with individuals that don't have a steady income. A steady job, even a part-time job, makes your child a better candidate for credit cards and loans and, in turn, helps him build his credit. 

The right age to start building your kid's credit is up to you. Obviously a ten-year old doesn't need a credit report. And its up to you whether or not to actually give your child the authorized user card and let him use it. Although having his own card helps your child learn more about managing money, don't put yourself in a sticky financial situation in the hopes of teaching your children more about money and credit.. Whatever route you choose, give some serious thought to helping build your teen's credit--it could make a world of difference for him as an adult.

Related Posts:

Improving Credit Scores After Collections

Credit Card Authorized Users Hounded By Debt Collectors  

Can a Collection Agency Come After a Minor?

Remove Late Payments: How to Write a Goodwill Letter That Works

Make a goodwill letter work for you

Late payments on your credit report can wreak havoc on your credit scores and prevent you from qualifying for the best rates when you go to finance a home or car or apply for new credit. These late payments remain a part of your credit history for seven years unless you take action.

One method for removing late payments that many consumers have had good luck with is the goodwill letter. A goodwill letter is exactly what it sounds like: a plea to the creditor to delete the late payment notations from your credit report out of sheer good will.

Unfortunately, goodwill letters can fail for a variety of reasons. One common reason is that debtors, unsure of how to pen their own, unique, goodwill letter, simply copy and paste sample goodwill letters from the internet. After awhile, creditors recognize these copy-and-pasted letters as nothing more than form letters. This shows the creditor that you don't really care enough to take the time to pen your own letter.

I'm going to provide you with a step-by-step formula that will allow you to write your own unique goodwill letter without the frustration of trying to figure out just what to say and how to say it. I'll then show you an example of the completed formula as a completed goodwill letter.

Step 1: The greeting. Yep, this is starting to feel like the "how to construct a friendly or business letter" lesson from your third grade English class, but the greeting is important. If you've done a bit of research and know exactly who you're sending this letter to, use that individual's name. For example:  "Dear Mr. X" Don't use their first name. You want to demonstrate that you're showing respect right out of the gate, and this person isn't your next-door neighbor. You're not on a first name basis.

Step 2: Introduce yourself. Humanize yourself. Make the individual reading the letter view you as a real person and not just a name on a page asking to have perfectly legitimate late payments removed. Keep it brief and keep it believable. No credit card company is going to believe that you spend your life traveling to third-world countries teaching blind children to read Braille--even if its true.

Step 3: Mention your history as a customer. The longer you've held the card, the better. Credit card companies spend millions of dollars each year trying, not just to attract new customers, but to keep their existing client base. Loyalty points are important when asking a credit card company to remove your late payments.

Step 4: State that you want to remain a customer and compliment the company. This compliment can be simple or as complex as a short anecdote about a good experience you had with customer service, card security, etc. Don't \overdo it, but a little bit of well-placed flattery will always work in your favor.

Step 5: Explain the circumstances surrounding your missed payment or payments and own your mistake. You don't have to go into extensive detail (because credit card companies have heard every sad story in the book, I promise) What's important here is merely demonstrating to the credit card company that you made a simple mistake.

Step 6 : Refer back to your good payment history prior to the late payment occurring, and ask that the credit card company delete the negative entries as a gesture of good will. . Invite that the credit card company to take a look at your credit report (you have an account with them so they're free to pull it whenever they wish) to see what a responsible person you are. Your task here is demonstrating to the credit card company that you are not the type of customer to skip payments.

Step 7: Note the damage to your credit scores and how that has affected your life. Point out that, given your positive payment history with this company and others over the years, the amount of damage your credit sustained doesn't accurately affect your creditworthiness.

Step 8: Promise to never let this happen again and follow that up with a little "proof." Signing up for automatic payments, for example, eliminates the possibility that you could miss payments again due to simple human error.

Let's look at a sample letter broken down into the above elements. I'm going to use a random job and Capital One as my target, just for the purposes of the example.

Step 1: Dear Ms. X:

Step 2: My name is Lee Edwards. I have a wife and three children and I'm a high school math teacher.

Step 3: I'm proud to say that I've had an account with Capital One for the past ten years.

Step 4: I've been surprisingly pleased by the service I've received. Just last year a suspicious charge showed up on my credit card statement. When I called your offices to find out more about the charge, the customer service representative was kind enough to simply remove it. There was no hassle, and I'm very grateful for that.

Step 5: Unfortunately, my past experience with your company isn't my reason for writing you today. I pulled my credit report recently and discovered a late payment notation for my Capital One card for the months of March and April. In February, my wife developed a serious illness and was hospitalized. When she returned home, she required round-the-clock care. Her illness eclipsed everything else in my life and, for the first time ever, I missed two credit card payments. I'm not trying to make excuses, but its important to me that your company know that my missed payments weren't a result of financial trouble or irresponsibility.

Step 6: In ten years of being a responsible card holder who always paid on time, this is the only time I've been so late paying my credit card bill. If you pull my credit report, you'll see that I have a good history of paying my debts and that the late payments are not indicative of my behavior as a whole. Because of this, I humbly ask that you consider these factors and remove the late payments from my credit record.

Step 7: After pulling my credit scores, I discovered that these late payments have caused my credit scores to fall by roughly 150 points. It took many years of hard work and timely payments to build my previously excellent credit rating and a single illness to knock it down.

Step 8: These two late payments are an anomaly for me and a situation that will never repeat itself. Please give me a chance to prove that I am still that good customer I've been for the past ten years.


Thank you,

Lee Edwards