Your Children’s Credit

By: Tana Gildea

We all know that identity theft is a problem; we (hopefully) all know to check our credit frequently or to have a credit monitoring service, and we know to guard and protect our social security number and account information. What we frequently don’t think about is minding our children’s credit. More and more thieves look for kids’ information since they know it may be years before the theft is discovered.

According to a Wall Street Journal article in August, 2018, New on Parents’ To-Do List: Checking Children’s Credit History, “One credit reporting company, Experian” estimates such identity theft will affect one in four children before they become an adult.” Wow! 25% of kids—that is eye-opening!

Fortunately, a new law went into effect in September to make it easier for parents to access and freeze their kids’ credit. The law, part of broader banking legislation, also allows adults unlimited, free credit freezes. Yes, freezing your credit can be a hassle if you know you will need credit for a car or home purchase, for example, and it does cut off those awesome, “save 10% when you open an account today” offers at the store, but for kids, it needs to move to the “must do” part of the to-do list!

The Federal Trade Commission has great information at https://www.consumer.ftc.gov/articles/0040-child-identity-theft including “warning signs,” “check for a credit report,” and “repair the damage.” The page offers links to the credit bureaus and the steps to place a credit freeze. Yes, you’ll need to set aside a bit of time to work through all of the steps, but it will be much less painful than if you find out about an issue at a time when your child needs to start using their credit!

And, speaking of using their credit, when is the right time to help your child establish credit? Sooner is probably better once they turn 18, but you want to do it an a way that helps them build a good score. For my kids, their teen checking accounts helped them create a good score as they were careful about not over-drawing, and we set up a fail-safe to cover any “oops” events. A WSJ article in August, 2018, How College Students Can Build a Good Credit Rating, suggests:

  • Add them as an authorized signer on your card (assuming you have good credit and set clear rules!)
  • Start them off by applying for a gas or retail card which has lower limits and may be easier to get.
  • Use a service such as Rental Kharma or ClearNow if they are paying rent off-campus in college. These services will report to credit bureaus.
  • Have your child sign the car loan (with you co-signing most likely) and make the payments while you cover the insurance and maintenance. Even if you are giving them the funds for the payments, it helps them build credit.
  • Use a secured credit card; yes, you must have cash on deposit but fronting $500 may be worth it to get them established.

Regardless of how your kids finally do establish credit, teach them the importance of monitoring and protecting their credit — there’s an app for that!