Empowering Your Teen to Build Credit for a Brighter Future!

 

If you have teens, you need to listen up! In the past few weeks, I have heard from lots of you asking about your teens and building credit. I have created a simple formula and it has worked well for my three children. Not only to build credit, but also to create good financial literacy skills that will last a lifetime. That's not to say there isn't another way to do this, but I found this one successful. 

Let's start with the why. Why should your child build credit?

Empowering Your Teen to Build Credit for a Brighter Future!

The short answer is that unfortunately most big purchases are based on your credit history. So if your teen has no credit history, it will be tough for them to buy a car or house when the time comes.  

So how does a teen build credit? These are the steps that I took for all three of my children and it has worked well for them. 

1. 12-years-old - add teen as an authorized user on one of your credit cards 

2. 16-years-old - teen opens their OWN checking account with a debit card 

3. 18-years-old - teen opens their OWN credit card. Some good credit cards that will approve your teen include Bank of America student travel or cash card, Chase FREEDOM Unlimited, Capital One SavorOne Student Cash Rewards. Avoid the Discover card since it is only accepted on a limited basis outside the United States. The Chase FREEDOM Unlimited is my #1 choice since it offers a $200 bonus when you spend $500 in the first three months and it has no annual fee. I also LOVE Chase Ultimate Rewards points so this would be a card your teen can keep forever. 

4. 20-years-old - teen opens their OWN Chase Sapphire Preferred credit card. This card carries a $95 annual fee, but will make the teen's Ultimate Rewards worth more. Currently, it has a 60,000 point bonus which could pay for your teen's trip to Europe or Spring Break! And a $50 hotel credit! You may have to help your teen reach the minimum spend, but it's worth it. 

Empowering Your Teen to Build Credit for a Brighter Future!

After you follow these steps, your teen should have a credit score of approximately 800. Pretty good! 

Remember, you must pay off the balance on these cards every month! The best way to do it is to put the card on autopay immediately.