Establishing credit is usually associated with the responsibilities of adulthood. However, many 16-year-olds have jobs and are ready to begin balancing income and expenses while building a credit score that will follow them over the years to come. There are a variety of ways that teenagers can build a credit history as they begin their journey to financial independence.
Secured Credit Cards
Secured credit cards are credit cards provided through banks and other major financial institutions that report to credit reporting agencies. A parent can transfer money from a bank account into the child's credit account, or the child can deposit money by going into the bank or mailing a money order to financial institutions that may not be within driving distance. A teenager cannot go over the credit limit, because the limit is only equal to the total amount deposited into the account and deductions occur instantly when the card is used. There is usually a minimum balance requirement in the credit card agreement, so as long as the account maintains a minimal balance, the financial institution will report the account as in "good standing" or "as agreed" to credit reporting agencies. This way, a positive credit rating is being established.
Open Cell Phone Account
Many cell phone carriers will allow a 16-year-old to open a cell phone account. As the bill is paid in a timely manner, the credit reporting agencies will be notified that the account is current and paid as agreed. This will boost the teenager's credit score and build a positive credit history. Remember to choose a cell phone plan that is realistic in relationship to the amount of money the teenager earns and is able to pay each month.
Become Authorized User
A parent can make their teenage child an authorized user on their credit card or checking accounts. The drawback to this arrangement is that if the parent is late on payments or falls upon a hardship that makes a credit card payment late or causes outstanding checks to bounce, the teenager's credit will also suffer. On the other hand, a parent with relatively stable income and secure backup sources will be helping their child to walk into young adulthood with a good credit rating as well as money-handling experience.
Take Out Auto Loan
A great way for a teenager to build credit is through a car loan. This not only gives the teen a sense of responsibility in establishing credit, but it also provides the teen with transportation so that he can get to and from work to earn the money to pay off the loan. There is a great sense of pride and independence that comes from working, paying off a loan and establishing a good credit rating in the process. A parent may need to co-sign for the loan for lending institutions to take the chance on a minor, but the end result will likely be a positive credit history that will lay the groundwork for a more stable financial future.
- "Wall Street Journal": Helping Teens Build a Credity History; Aleksandra Todorova; August 2009
- Credit FYI: Build Credit History for Teens; Dawn Handschuh
- Consumer Financial Protection Bureau. "How Long After Getting My First Credit Account Will a Credit Score be Created?" Accessed June 23, 2020.
- Consumer Financial Protection Bureau. "Can a Card Issuer Consider My Age When Deciding Whether to Issue a Credit Card to Me?" Accessed June 23, 2020.
Born and raised in western New York, Tonya Cunningham attended Niagara University until 1992 as a pre-law student. Today, Cunningham is a legal assistant and freelance writer looking forward to the completion of her first book.