A Guide To Your Child’s Credit Report: Pros and Cons

It seems our job as parents of teens keep getting harder.

Are they on drugs? Alcohol binging?

Is their credit report alright?

Yes, they can have credit issues!

Once you have debt and payment history, what and when you borrowed, and how to pay back the debt, a credit report is issued.

Half of the ten major credit card issuers allow minors as authorized users with no minimum age.

So a child under 13 years old can be an authorized user. Is that too young? Unfortunately, it is not too young to be a victim of identity theft.

Parents need to review their child’s credit report, especially if they are now authorized on your card.

There are different age milestones for getting your credit card.

Typically, you must be at least 18 years to apply for a credit card.

The Credit Card Accountability Responsibility and Disclosure Act of 2009, the CARD Act, has made it more difficult.

If you are between 18-21 years old, you need to prove you can pay your card bill through a show of income from a job, grants, and scholarships.

How early can a minor have a credit report?

Technically, credit reports can be started for children of any age if authorized users of a parent’s credit card.

Most major credit card companies will allow you to add your teen as an authorized user and impose a minimum age. Some companies do not have minimum age limits at all.

The Pros

Having a good credit score at an early age is a good strategy.

Parents increasingly are making their children authorized users of their cards.

Authorized users piggyback on the credit of the parent but are not responsible for paying the bill.

There may be some fees to pay for this benefit.

You are hoping your teen will become responsible about credit and build good credit by using credit cards early under your care.

As parents, you need to make sure your young child is responsible for using the card. You can set spending limits or get alerts when they make purchases.

Make sure your children communicate with you about their spending activities, especially gaming subscriptions and food deliveries. There are hefty premium prices to pay for the convenience of food delivery from DoorDash and Uber Eats. Also, discuss the rules about not sharing their cards with others. 

Streaming companies Netflix and Hulu may finally be going to cut down on account sharing using new technology. A report showed that 26% of millennials are sharing their Netflix credentials with nonpaying customers. Why wouldn’t younger people?

As they go away to college, you want them to be comfortable with using their cards. Your teens could build credit, besides credit cards, by getting a job, opening a checking and savings account, or by giving your teen responsibility for one household bill such as Netflix.

The Cons

There are downside factors, though.

Being an authorized card user of a parent’s card with not such a great credit score could expose your user to a bad start in credit. A parent’s late payment will impact not only their score but their offspring’s as well.

Not all credit card companies view the authorized user as responsible for the loan, and your young user is not getting credit.

The authorized user benefits only if the issuing bank reports them to the three credit bureaus (Equifax, Experian, and TransUnion). There are differences as to how they use the information.

A credit file and report are open for the authorized user of a card.

Your credit card has a lot of data that merchants, banks, and others use for its purposes. While there is some security in place by the three credit reporting agencies (and additionally, consumers can use monthly plans for added protection for a fee), there have been known breaches.

Identity Theft Is High For Young People

According to Javelin Strategy and Research, in 2017, 16.7 million US victims of fraud and identity fraud. In 2017, more than 1 million, or nearly 1.5% of minors, were affected by identity theft.

Teens are open creatures, sharing personal information online with numerous “friends” on Instagram, Snapchat, WhatsApp, and Facebook. They use public Wi-Fi and frequently misplace their phones.

Teens under age 18 are twice as likely as their parents to be victims of identity theft and fraud. Their credit report is like blank slates. More than 1 million children or 1.48% of minors were victims of identity theft or fraud. About 14% of these minors are in the 13-17 year bracket.

It takes years to fix these messes children just getting out into the world.

Alternatives to authorizing your young user?

A parent can arrange for a secured card from a card issuer for someone as young as 13 years old.

Secured cards are an interim step, like putting a child on credit training wheels and allowing them to spend wisely and within limits based on the amount on the card. Secured cards can help you build credit, unlike debit cards. 

Debit cards will not affect your teen’s credit scores but can teach them about spending limits. It doesn’t open up a credit report. That can be a benefit when kids are learning about credit.

If a parent makes their child an authorized user of their credit cards, it is good to talk to them first and teach them safe behaviors regarding spending and internet privacy. They use their phones often better than we do, but they need to spot potential scams.

Tell them not to overshare personalized details with those on their social media accounts. As a parent of two teens, I get more than my share of eye-rolling but not having this conversation has its pitfalls.

Child identity theft requires some action

In 2018, the Federal Trade Commission (FTC) made it easier for parents to fix children ages 16 years or younger credit reports if their credit report has errors due to fraud or misuse. Economic Growth Regulatory Relief and Consumer Protection Act key points:

Freeze credit files and one-year fraud alerts for free. They lowered the age to under 16 years, from 16 and above.

Extend the credit freeze to one year from 90 days.

Includes guardians who have a valid power of attorney.

Once your teen turns 16 years old, it is probably good to check their credit history.

Your teen has three possible outcomes:

 1) They may have no credit history, a reasonably typical outcome. It is an excellent time to talk about being credit responsible and consider ways to build up their credit, like getting a job or giving them that Netflix bill to pay.

 2) They have a legitimate credit file. Your teen is an authorized user on your credit card and should trigger a credit report that is accurate and in your teen’s name. Check the information on the credit report. Make sure there aren’t any unusual marks on the file. If there are items unrelated to your credit card, incorrect spelling, or the wrong address, you need to clean it up.

3) The credit file reflects fraud. There may be one or more accounts listed on your teen’s credit history. Someone could have opened credit cards, loans, or borrowed in your teen’s name.

Don’t panic, but you will need to get moving on cleaning the hot mess! You will need to find what each credit agency requires you to do. Parents and guardians can request free Child ID Scan services from Experian and others to identify if your child’s social security number is on someone else’s credit file.

 

What do you do if you find identity theft or fraud on your child’s report? 

If you suspect identity theft, visit Identitytheft.gov/child.

Identity theft occurs when someone uses your personal information such as your name and Social Security number without your permission.

Identity thieves could take over your accounts, open new ones, file fake taxes, buy properties, and do many criminal activities.

Child identity theft or identity theft of minors is particularly appalling as criminals target those most vulnerable.

Sometimes, the criminal is a relative (“familiar fraud”) who can quickly provide and verify your child’s identification details like a home address and telephone number.

If you see charges on your child’s credit report, call each merchant where the fraud allegedly occurred.

A Minor Child Does Not Have Contractual Capacity

 

Children under the age of 18 years cannot enter into valid contracts. Explain that your child is a minor and, as such, cannot enter into legal contracts. At most, the contract is voidable, and the minor has the option to void it.

Full contractual capacity occurs upon your child’s 18th birthday in most states.

Ask the companies to close the fraudulent account and send you a letter confirming your child isn’t liable to the company.

Send the company a follow-up letter and attach your child’s FTC Identity Theft Report and a copy of your child’s birth certificate. You need to do this for each of the fraudulent charges. You will request a free credit freeze from each of three of the credit bureaus.

It is tough to do all of this, but you want to remove this possible stain on your child’s records. It will take time. That is what we can do for our children.

Thank you for reading! Please visit us at The Cents of Money for other articles of interest!

It is essential to protect our privacy, but we must also look out for our children!  If you have experience with your teen’s credit report or identity theft, can you share how you could take care of it? We want to hear from you!