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!
A credit report is issued once you have debt and payment history, what and when you borrowed and how you can pay back the debt.
Half of the 10 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 history, even if they are not yet on your card.
There are different age milestones for getting your own 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 are able to 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 they are authorized users of their parents’s credit cards.
Most major credit card companies will allow you to add your teen as an authorized user and may impose a minimum age. Some companies do not have minimum age limits at all.
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 with using the card. You can set spending limits or get alerts when purchases are made.
Make sure your children communicate with you about their spending activity. Also, discuss the rules about not sharing their cards with others.
Streaming companies Netflix and Hulu may finally going to cut down on account sharing using new technology. It was reported 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.
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 well, credit.
The authorized user is only benefited if the issuing bank reports them to one of the three credit bureaus (Equifax, Experian, and TransUnion). There are differences as to how they report the information.
A credit report is opened for the authorized user of a card.
Your credit card has a lot of data that is maintained by merchants, banks and others. While there is some security in place by the three credit reporting agencies (and additionally monthly plans can be used for added protection for a fee) there have been known breaches.
Child identity theft has been rising
In 2017, 16.7 million US victims of fraud and identity fraud according to Javelin Strategy and Research. 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 are 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 prepaid card from a credit card company may be arranged for someone as young as 13 years old.
This may be 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. Prepaid cards are more like debit cards, and they will not affect your teen’s credit scores one way or another.
It doesn’t open up a credit report either, and that can be a benefit.
If parents do make their children authorized users of their credit cards, it is a good idea to talk to them and teach them safe internet behaviors. They use their phones often better than we do but they need to be able 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 own pitfalls.
Child identity theft requires some action
With rising identity theft, and in particular, of our children’s virgin credit availability, as of September 2018, the Federal Trade Commission (FTC) has made it easier and cheaper for everyone, including parents to fix credit reports of children ages 16 years or younger 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. This is a change for consumers in certain states who had to pay.
Lowering the age to under 16 years, from 16 and above.
Extends 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 a good idea to check their credit history.
Three possible outcomes. Your teen has:
1) no credit history. This is totally normal and expected. It is a good time to talk about being credit responsible and consider ways they might start building up their credit like getting a job or give them that Netflix bill to pay.
2) a legitimate credit file. Check the information on the credit report. Oh yeah, 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. Make sure there aren’t any unusual marks on the report. If there are items that are not related to your credit card, or incorrect spelling or the wrong address, you need to clean it up.
3) a credit file due to fraud. You start to get the sweats! 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 the others to identify if a credit file is found with their child’s social security number.
What do you do if your child’s report has been impacted by identity theft or fraud?
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 a number of criminal activities.
Child identity theft or identity theft of minors is particularly appalling as it aimed as those among most vulnerable.
Sometimes, the crime is being committed by relatives (“familiar fraud”) who can easily 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 of the companies where the fraud allegedly occurred.
Your child does not have contractual capacity so their contracts are not valid
Explain that your child is a minor and as such, cannot enter into legal contracts. At most, it is a voidable contract, and can be voided at the minor’s option.
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.
It is important to protect our own privacy but we must also be on the look out for own children’s! If you have experience with your teen’s credit report or identity theft, can you share how you were able to take care of it? We want to hear from you!
Learn more about protecting your privacy against fraud and scams
9 Ways To Better Protect Your Privacy Against Fraud And Scams
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.
2 thoughts on “A Guide To Your Child’s Credit Report: Pros and Cons”
Thanks so much for this educative and informative content. I have learned a lot from it and believe it will benefit others too. Thanks for sharing.
Thank you, Chris!
It’s an important topic.