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The Resource Center Credit Fraud & Credit Monitoring | article

Building an Older Child’s Credit Score With Secured Credit Cards

Every September, many parents set aside a few days in their schedule to ensure their new college student can settle in to his or her new dorm room. During this process, many moms and dads brave flights of stairs and long lines at department stores to secure last-minute items. However, parents should also take time to consider whether or not their child is ready for a credit card.

While gaining the ability to make flexible payments is important, parents should evaluate the best option that can help their children boost their credit reports and scores. Whether these financial indicators will improve during the course of the child’s college career may depend on the kind of borrowing parents want to allow their child to engage in. As a result, parents should examine both secured and unsecured cards before making a decision.

The benefits of secured credit cards
Secured credit cards function in a similar manner as debit cards, with one major exception. The borrowing record a child develops with this financial tool is recorded by credit reporting agencies. This means that by using the card responsibly, over time, the child can build a good credit score simply by charging expenses on books, food and other necessary items and then making payments.

The drawbacks of secured credit cards
To receive this kind of card, parents will need to help their children open a traditional bank account. This is because secured cards require that a certain amount — usually a few hundred dollars — be tethered to the card in case the child misses a payment. Annual fees can also make this option less attractive.

Evaluating unsecured credit cards
Unsecured credit cards are the most common type of borrowing line. With this type of card, parents can ensure their students have a higher borrowing limit. But, while this option may provide advantages, students may have difficulty qualifying if they don’t have a borrowing history. In addition, parents who cosign for a card risk their credit scores if the child engages in irresponsible spending. But, with timely payments, either option can allow children to build a good credit score so that they can achieve the best borrowing rates when they get ready to buy a new car or house.