“Mom, I need a credit check,” my daughter Gabriella told me a few weeks ago. Gabriella, a college student, is subletting an apartment for the summer. Her landlord required a credit history check. It seemed to me a good time to share How I Helped My Daughter Build a Credit Score.
Gabriella will be rooming with her friend, Lisa. As Lisa has no credit history, they applied for the apartment in my daughter’s name. Fortunately, we had already set things up to start building her a good credit history.
How I Helped My Daughter Build a Credit Score
I started helping Gabriella develop a credit history her first year in college. I helped her apply for a secured credit card to use for discretionary expenses. With a secured credit card, you make a deposit with the issuing bank and your credit limit is equal to the amount of the deposit.
I made certain Gabriella follows these three credit-building and good money management rules:
- Pay the bill on time. Always. No exceptions.
- Keep the credit utilization ratio below 30 percent of the available credit.
- Charge only what you can pay in full every month.
I also added Gabriella to one of my credit cards which has a relatively low credit limit. Gabriella can use this card only for purchases my husband and I give her permission to make. For example, her horse Leo needs a brand of grain which isn’t provided by the stable. Since we pay Leo’s expenses, she uses this card to buy the grain at a local feed store. Gabriella also uses it when she is home from school and I ask her to pick something up at the store.
As Gabriella is an authorized user on this credit card, it is reported on her credit report and included in her credit score. I pay this card on time in full every month. This helps Gabriella both create a credit history and keep her score as high as possible.
Other Ways to Help Your Child
Another way to help a young person establish credit is to open a credit-builder loan. Credit-builder loans are generally available at credit unions and smaller community banks.
While Gabriella is developing her credit history, we do two things to protect it.
- First, we have a credit freeze on her file (which meant she had to unfreeze it for a short time while her credit was being checked).
- Next, we regularly obtain her credit report, one from each of the three major credit reporting agencies every four months. You can obtain your free credit report at AnnualCreditReport.com.
Gabriella passed the credit check for her apartment. This impressed her landlord who asked Gabriella how she has a credit history at such a young age. Of course, had Gabriella had no credit history or if hers wasn’t sufficient, my husband and I would have co-signed her lease. We are happy for her that she was able to sign the lease on her own.
Benefits of a Good Credit Score
Having a good credit score helps our young adults get established in life. Credit scores are necessary for auto insurance, car and other loans, cell phones. Some employers and landlords check applicants’ credit, and eventually mortgages. They use credit scores to evaluate whether the person is responsible and reliable. A good time to help our kids establish a good credit history and learn good money habits is while they are still in school.
This blog is published to provide you with general information only and is not intended to provide specific or comprehensive advice. Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate. The names of the individuals in this article have been changed to protect their privacy.
Photo copyright 2021 by Money Care, LLC. Photograph and blog content is the property of Money Care, LLC and may not be modified, copied, reproduced, sold or distributed in any manner or medium without permission.
