You know that you need to teach your child about finances early on. But while you teaching your child the importance of budgeting and saving up for goals, chances are that your child’s credit report doesn’t come up.
However, you could be making a big mistake by not keeping tabs on your minor child’s credit history. “Children’s IDs are attractive to criminals because they know that most children have no credit,” says Michael Foguth, of Foguth Financial. “They are working with a blank slate when applying for credit.”
If you don’t watch out for your child’s credit history, there is a good chance that he or she could enter adulthood with negative credit, thanks to unpaid debts racked up by criminals looking to cash in.
Why your child’s credit is vulnerable
Today, much of the credit process is handled electronically and automatically. You can apply for a credit card online, have it sent to your address, and never see a person face-to-face. It’s even possible to use a minor’s Social Security number to apply for credit offline. When you give a number in a store, looking for a financing offer, what you give is run through electronically, and many associates only see whether or not you are approved, and what kind of financing deal you can receive.
This makes it relatively easy for scammers to steal your child’s ID and do a great deal of damage. After all, most of us don’t even check our credit until we apply for our first credit card. Your child might not even realize something is amiss until his or her early 20s.
“It is not very common to have any credit protection as a minor, so the theft will go undetected for a longer time,” Foguth points out. Indeed, if your child is eight or nine when his or her identity is first stolen, it’s not unreasonable to assume that an identity thief can cash in for 10 years or more before the problem is even discovered.
Another issue is the fact that many kids are online with their lives. My son has a LEGO Club account and an account with Microsoft online. I had to go through a few steps to approve the accounts as his parent, since he is so young, but the reality is that this access exists. My son can hardly wait until he turns 13 and can get a “real” Gmail account (separate from his school email) and a Facebook account.
From gaming to social media, children are online, and interacting with others. And, because kids are often much less guarded than adults, it’s relatively easy to get information from them that can be useful, even if it isn’t a Social Security number.
“Parents now must worry what their children are doing online, and what others may be doing to them online,” Foguth says. “Parents must start protecting their children from these crimes.”
How to protect your child’s credit
Most parents don’t think to check their children’s credit reports; many parents don’t even check their own credit regularly. This is a big mistake that needs to be remedies. “The best way to detect child ID theft is to have their credit monitored, just like an adult’s,” says Foguth.
You can check your child’s credit reports annually, using resources like AnnualCreditReport.com. However, if your child is under 13, you need to be prepared to take a few extra steps to access his or her credit report. AnnualCreditReport.com requires that you provide sufficient verification that you are a child’s guardian before you can proceed. This process might include mailed-in documentation. It’s the trouble, however, so that you can keep an eye on the situation.
Additionally, watch for suspicious signs that your child’s credit might be compromised. There have been stories in the news about children who receive credit card offers — and who have even been approved for credit cards. And, even after the passage of the Credit CARD Act, there are still stories of minors receiving credit card offers. Receiving these offers might be a sign that someone has used your child’s identity to obtain credit.
Also, it’s possible that your child has a credit report for less nefarious reasons. If someone sends your child a gift, ordered online and sent directly to him or her, the name might be on a marketing list that could then be sold to creditors looking for potential customers.
Once you start monitoring your child’s credit report, you have a better idea of what is going on with it. You can request to have a freeze placed on the report, so that it’s more difficult for new credit to be opened in your child’s name. With a freeze on the credit report, you should be contacted for verification before new credit is issued.
“Monitor as much as possible so you can catch problems right away,” suggests Foguth. “Once you have found a discrepancy on the report, handle it with the company and the credit reporting company.”