Whether you’re negotiating an allowance or starting a new savings account, it’s never too early to start teaching your child about money. As your child grows, your conversations should cover a variety of financial topics. By the teenage years, it’s important to teach kids the significance of building a good credit history. When talking with your child, be sure to include these basics about credit scores.
Credit Reports Are Information About You
Many kids don’t realize that financial information about them is being gathered and stored. Make it clear that credit reporting companies keep track of all credit card and loan activity, and those factors build a person’s credit score. You can make sure your score is staying high by obtaining your free credit score with Credit Sesame. Monitoring your record is a smart decision that will help you address issues that could damage your credit.
Your Credit Score Matters
The topic of credit history sounds abstract so teenagers might think it’s something that will never affect them. To make the subject more relatable, talk about situations from real life when a credit score matters. For example, a low credit score might stop a landlord from leasing an apartment to you. Dreams of moving out could be dashed.
Applying for a car loan is another example that resonates with young people. Your credit score indicates to lenders that you can be trusted to pay back debt. A low credit score due to a history of late credit cards payments can cause a lender to turn you down.
Talk to your child about how good credit can help you be ready for unplanned financial situations that may arise. For example, unexpected home repairs might mean you need a loan quickly. You want your credit score to be in order so you can handle any situation with ease.
Building Good Credit Should Start Early
Having no debt sounds great, but your child should know that not all debt is bad. Having a record of paying your bills on time is one of the most important factors in determining your credit score. When your teen is ready for a credit card, it could be the first step in developing an excellent credit score.
Advise your child to make small purchases with the card and then pay the balance each month. This will build of record of timely payments of debt. If your child has a monthly payment for any service, pay it with a credit card. To make this even easier, set up auto-pay for the credit card bill so your child doesn’t even need to remember to make the payment.
There Are Multiple Credit Card Options
If your teen is not ready for the responsibility of owning a standard credit card or doesn’t qualify for one, there are other options. Consider a student credit card, which is easier to apply for and has a lower credit limit than regular credit cards.
Another option is a secured credit card. The amount of the credit limit is equal to how much cash is paid to activate the card. This card can introduce your teen to managing money without the risk of accumulating large debts.
You can also add your children to your own credit card as an authorized user. This means they can use your account to make purchases, earning credit in their name, but ultimately you are responsible for payment.
Taking these small steps while your child is young builds the foundation for a solid financial future. An understanding of how credit history is built will set your child up for success. Developing good spending habits early will benefit your child throughout life.