A 13-year-olds present that helps their financial future

BCR Wealth Strategies |
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Author - Marshall Rathmell

Happy 13th Birthday John Marshall Rathmell!!!!!!!

13, the first year as a teenager.  In many cultures 13 is the beginning of adulthood and added responsibilities.  For parents looking to help their kids become self-sufficient, a 13th birthday is a good time to help them start establishing credit.

If you have been reading our blog, you have seen things I have done to prepare my kids to be financially responsible.

Here are a few:

How to Teach Kids About Saving Money   

Tools to Help Your Kids Understand Finances

Teach Your Kids Math

Credit scores can affect not only how much banks will loan you but more importantly things like the rate they will charge you and how much your home and auto insurance cost. There are six major areas that contribute to an individual’s credit history and a couple of them tend to hold young professionals back the first several years when they start their careers, but they don’t have to if parents start helping early. 

  • Average credit history age is considered the best if it is over 9 years.  That is hard to accomplish when every credit line you start adds a 0 into the average.
  • Total accounts are considered the best if it is over 21.  I know that sounds like a lot, but they want to see that you successfully manage many different accounts.
  • Hard inquiries are best when you don’t have any in the last 2 years.  How is someone supposed to accomplish that when they are requesting new credit lines to get to the 21 early to start increasing their average credit history age?

You can’t be a co-signer or primary user on a credit card until you are 18 and have income.  While it is not as strong on your credit history, being an authorized user builds your credit history age (sometimes even going back to when the credit card was initially established) and total accounts while not creating a hard inquiry.  Making your child an authorized user does not require that you give them the actual credit card or that they use it.  As a matter of fact, I won’t give John Marshall access to the credit cards I add him to.  It is important though that I continue to educate him so that he uses this present well when he starts his career.

It is not hard to find a list online of the ages major credit card companies require before they will add someone as an authorized user.  I started adding both John Marshall and Amelia to several of my cards without an age limitation in the last few months and will add him to more in the coming years as he reaches the required ages.

IMPORTANT THINGS TO KNOW

  • You don’t have access to check the impact with tools adults have (like Credit Karma) but a guardian can check someone under 18s credit report once a year on https://www.annualcreditreport.com/
  • You are transferring some of your credit history to your child.  You should only add them to an account that you have managed properly and will continue to.  If you miss a payment, you will hurt their credit history as well as your own.
  • You won’t want to remove them as an authorized user when they get older so that they keep the history. 
  • Another important factor in credit history is the amount outstanding versus what is available.  The best scores are gained when you have under 10% outstanding.  When they are requesting credit, they need to know to check in and make sure you didn’t just put a large purchase on a card they are on. It would make their credit usage too high.