How to help your adult kids build their own credit

There’s no denying that it can be hard to get a first credit card as a young adult. However, doing so is an important step in becoming financially responsible. Luckily, as a parent, there are several things that you can do to help guide your child through this tricky-but-necessary process of establishing a credit history.

Read on for some tips to help you set your child up for personal finance success and start to build good credit.

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1. Teach them the fundamentals first

Assisting your child with opening their own credit card account involves much more than helping them fill out an application, according to Steve Adcock, founder of "Think Save Retire," a resource for those hoping to achieve early retirement. To him, it's about teaching them personal finance fundamentals like paying bills on time and monitoring their credit utilization ratio.

“Teach your child to never spend money on the card that they do not have in their bank account”, he advises. “Credit card interest rates are debt-inducing if not carefully managed, so it’s crucial that they understand the importance of paying off cards in full each month.”

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2. Guide them through the research process

“Parents should do their best to help their children determine what type of credit card they need,” says Adcock. In particular, he suggests looking into credit scoring indicators to make sure they are likely to qualify for a credit card account, any card fees, and all the available card benefits.

While he points out that a rewards card can be beneficial, especially if you look for cards that offer rewards in categories that younger adults are likely to use like gas stations, food, and entertainment, it’s also important to weigh the cost of annual fees. While cards with no annual fee may not be the most rewarding credit cards, they ultimately come with one less big bill that your child has to worry about managing on a yearly basis.

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3. Look into secured cards or student cards

If your child has no prior experience with credit cards, worrying about travel cards versus cash back cards may be a step too far. If your child is a college student, Adcock recommends looking into student credit cards. As unsecured cards go, student credit cards generally come with decent card rates and have low limits.

“In this case,” says Adcock, “a low credit limit is a good thing. It offers them an easy way to start building credit on their own without offering too much opportunity to go into debt.”

However, if your child is beyond the age where a student credit card is appropriate, it may make sense to look into secured cards. The credit limit on a secure credit card is backed by a deposit that is made when the cardholder opens the account. If the balance on the card is not paid on time, the card issuer simply takes the amount due from the deposit.

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4. Consider co-signing for them

Lastly, Adcock recommends thinking about co-signing the credit card application with your child. “This is one of the easiest ways to help your child build credit while you still have a positive influence over their willingness - and ability - to pay loans back,” he says.

However, if you’re going to go this route, it may make sense to have a conversation with your child about responsible credit card use and the personal finance expectations that come along with it. Otherwise, you could get stuck with footing the bill for their spending on an ongoing basis.

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The bottom line

These days, there are plenty of types of credit cards on the market. There are cards for those with fair credit or bad credit and cards for those with no credit history at all. If your goal is to help your child find the right credit card for them, patience is key.

Be sure to look at a variety of cards before you make your decision on where to apply. Then, once you submit an application, wait for a response before applying for any other options. Doing so will help you avoid putting too many hard inquiry pulls on your child’s credit report.

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