Help your children increase their credit score

Boosting credit scores

Building up a good credit history when you're young is important. Unfortunately most people start this process too late and haven't thought about it. This article explains how you can help your children to avoid such a mistake:

One of the things that many 20-somethings face is that they reach a time in their life when they want to apply for credit. It could be for a credit card, for a loan, for interest free borrowings or even for a mortgage. They start the application process and realise the snag in their plan all too late - they don't have any credit history and as such the credit lender is unwilling to lend to them.

My children have no credit history

Unfortunately this lack of credit history is a problem that isn't so easily solved. It's a catch 22 situation whereby banks require you to have been awarded credit in the past in order to be willing to lend to you. However, no bank is willing to lend you credit, because you don't have a credit history....and you don't have a credit history because no banks will lend to you.

Normally this problem is resolved by taking on a credit card with a very small amount of credit limit and with an enormous APR interest charged on any unpaid balance.

Steps to boost your child's credit score

However, this is a problem that you can avoid for your children. There are a few strategies that a parent can take to help their children build a credit history making credit more readily available in the long run:

Mobile phones - many parents directly pay for the children to have a mobile phone contract. A mobile phone contract is a form of debt that you are paying off each month. Instead of paying for your child's mobile phone contract you should allow the child to apply for the contract in their own name and simply transfer the amount of money required each month in order to pay for it. This will help your child to demonstrate that they are credit worthy and will start to build a credit history (albeit a small one). It is unlikely that your child will be denied the contract on the grounds of no credit history as the value of the contract is normally very small. 

Laptops, electronics and furnature - if you insist on paying for electronics on credit terms then this is another great way for your child to build up a credit history. Transfer them the repayments each month such that it is as if they are paying for the item. Likewise for any furnature purchased on zero interest. Consider putting the item in your child's name. Transfer them the money each month and explain the reasons why they are paying for these items. Be very careful to ensure that they actually have the money each month to pay for the item otherwise you may end up doing more damage to their credit score than good.

Overdraft - I would never advocate actually using your overdraft. The interest can be extortionate. However, it may be worth asking for your child's current account to have an increase in the overdraft facility every 6 months. It need only be a couple hundred pounds each time. However, it will demonstrate on your credit history that lenders are progressively willing to lend your child more and more.

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