Helping Teenagers Develop Their Credit Scores Without Endangering Their Financial Future

One of the first adult-steps that teenagers need to take nowadays is establishing their credit. Establishing credit usually means getting a credit score. A credit score is a very important number for American consumers. The credit score of an American consumer shows what type of a borrower he or she is. The higher the score, the better he or she is at paying off his debts. Credit scores are often used as a benchmark by financial institutions to determine if a certain consumer can avail of their service such as a loan or mortgage. It also plays a part in what type of deal the financial institution makes with its customer.

Establishing credit can be financially risky. This is especially true for teenagers. So much so that Congress saw fit to include provisions in the upcoming Credit CARD (Card Accountability, Responsibility and Disclosure) Act specifically to protect teenage consumers from the perils of credit cards. Legislation in the Credit CARD act will make it much more difficult for credit card companies to market to teenagers. Teenagers will also have a tougher time applying for credit cards as well.

However, by making it tougher for teenagers to apply for credit cards, the rules might also delay the establishment of good credit among these young consumers. Establishing a good credit score is very much a necessity nowadays. Without a good credit score, these teenagers will have a tough time securing a mortgage, loans and other inconveniences. Also, the earlier a credit score is begun, the higher it will get as it gets older, so long as the consumer pays his or her debts on time.

It is actually a good idea for teenagers to get a credit card. By doing so, they can build up their credit scores faster. The problem is how to keep the young credit card holder from getting into financial trouble.

An excellent solution is for the teenager to be added as an authorized user under the credit card account of his or her parents. It is very important that the teenager is placed under a credit card account which has excellent standing as he or she will not only get a credit card under his or her name but will also inherit the history of the credit card account, regardless of how good or bad the history of that account is.

Credit.com president of consumer education John Ulzheimer says, “It’s like a credit card with training wheels”.

Becoming an authorized user under a healthy credit card account means that, instead of having to wait for six months to generate a FICO credit score, the leading credit score metric in the country, the credit card holder automatically gets an excellent credit score inherited from the credit card account. If the teenager is able to maintain the health of the account over the years, this adds even more to their credit score.

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