Parents have a great responsibility to help their kids obtain the skills to handle adulthood. One of these skills is financial literary, and there are steps parents can take to help build their child’s credit early on.
Helping to build your kid’s credit means setting your child up for future financial success. From lower interest rates to secured loans, there are many benefits that come with having good credit.
If you are a parent with a grown-up kid or someone joining college soon, take it upon yourself to teach them about credit. In this article, you’ll find some top tips on how to help your kids build excellent credit.
Get Rid of Financial Taboos
Forget the old notion that you should not talk about money with your kids and start early. If anything, this is the right time to start talking about the basics of money. Start small and consider introducing more complex subjects such as investing, stocks, and credit cards as they grow older.
Financial advisors insist that teaching your kids about overspending, irresponsible credit use, and other credit pitfalls as early as possible is important. This will help them grow up with the right mindset and attitude about using their money, including credit cards, responsibly.
Teach Your Kids Money Basics
Get into the habit of talking to your kids about the importance of having a good credit score and always live by example. This will give your kids a great foundation for sound money management. To help you, there are also free to low-cost financial resources to make use of, such as Mint.
You know you know your kids’ personality traits better than anyone else, so let this be the guide to help you teach them. While some kids are born natural savers, others are more inclined to spending and shopping. As such, pay attention to their unique inclinations and teach them accordingly.
Teach Credit Card Basics
Being an irresponsible credit card user is as bad of a habit as any other — it is a behavior that will hurt your financial history leave you in debt. Of course, you would never want to find any of your kids in this position.
Before you add your kids as authorized users, or help them open up their own credit card accounts, be sure to take them through the fine print explaining every detail as clearly as you can.
Even if it means going line by line, be sure to do it. This will prepare them mentally and help them understand the financial responsibility of owning and using a credit card, and the repercussions of misusing it.
Teach the Building Blocks of Credit
With this, you might consider getting your credit report and take your kids through each module, step by step, as you explain where you are performing well and where you need improvement.
Then, compare the two different scoring modules, VantageScore 3.0 and the FICO score. Break down how each system works and teach your kids how they can maintain healthy scores.
Give Real Life Examples of Consequences
If you have personally had your fair share of bad credit, share your experience with your kids. Though it might be embarrassing to open up to your kids about your bad financial choices, it will help your kids in the future. Accompany these lessons with words of encouragement and advice.
Bottom Line
It’s your responsibility to educate your kids on all matters of finances. It’s never too early to start talking about credit cards or help your kids build good credit.