It’s never too early to start talking about the value of wise money management and good credit habits. But, rather than beginning to create your child’s credit history for them, you must settle a solid financial foundation for them. Today we discuss how to help your teen build Credit.
And you are also teaching them good money management theory. It’s similar to doing all of their homework for them.
When it comes time for your youngster to take the test, they will fail because they haven’t done their homework. So the first steps are to establish a solid financial foundation, which contains a consistent income and an excellent checking account history. Teach your child about credit, and help them obtain hands-on knowledge with their credit card.
Children must establish their credit history as soon as possible to obtain better insurance rates. And also have a smoother experience renting an apartment, and, finally, have an easier time applying for mortgages or other types of loans. Here are the top tips for parents to help their children build good credit early.
Suppose your child is a young adult who can begin building credit with a credit card. You can teach them a few simple techniques for maintaining good credit. Paying your bills on time, spending within your means, and not opening more accounts than you can comfortably manage.
However, the best behaviors result from early education, not simply understanding how the credit game works. According to research, children begin developing money-related behaviors as early as age 3, and they are nearly settled by the age of seven.
Encourage saving by offering incentives.
However, a parent-paid interest program rewards children for saving money by allowing parents to send interest disbursements from their checking accounts.
The nearly 1 million parents and children who use Greenlight have saved roughly $25 million, or approximately $25 per child on average.
Parents who use the app’s parent-paid interest functionality, on the other hand, see their children save even more, and the students are constantly earning an average of 18% APY from their parents’ “bank.”
As the children grow older, they will understand that interest can be earned and charged when borrowing money from lenders.
Explain the distinction between a debit card and a credit card.
Just before your child is young, they will notice you glancing at your credit card at the checkout and will instantly know that a credit card is close to cash.
On the other hand, a debit card is essentially cash, whereas a credit card is borrowed money. So, before your child uses their debit card, they should understand the distinction.
Assist them in saving for a secured credit card early on.
If your child needs to open their first credit card at 18, you should motivate them to save up the required deposit for a secured credit card. If you have got a savings account at a bank or credit union, you may be able to borrow against it to open a secured card in some cases.
E.g., if your teenager opens a savings account at Digital Federal Credit Union (DCU), they can save toward a deposit on a DCU Visa® Platinum Secured Credit Card.
Motivate them to apply for a student identification card.
A student credit card is often the first credit card that many people obtain. Because most student cards allow students attending a two- or four-year college to build credit, some even allow them to earn rewards and receive student-focused benefits.
To qualify for a student credit card, your teen must be over the age of 18 and have a stable source of income, and most require that the student be a U.S. citizen.
Co-sign a loan or a lease
Since this approach may pose some risks to your credit score. If you believe your teen is reliable enough just to make car loan installments, it can be a good way for them to maintain credit without opening a credit card.
They may also require assistance in obtaining approval for their first apartment lease. Then you can serve as a co-signer to get them started. In some cases, they may request that their landlord or property manager report their rent payments.
An auto loan, student loan, or other types of installment loan could undoubtedly add to your student’s credit mix which accounts for 10% of their credit score. Still, you must first realize whether your state’s laws allow kids under the age of 18 to co-sign a loan. And as well as when each loan will appear on a credit report. For most situations, you can ask your lender these detailed questions.
Introduce your child as authorized users.
Introducing your child as an authorized user is an excellent tool to help them build credit. In some instances, your child can be eligible as young as 13 or 15 years old.
Before adding your child to your card, check with your card issuer to ensure that their activity will be noted to the credit bureaus (most major issuers do). Else, it will be useless in terms of assisting them in establishing a credit history.
Children can use your card independently for online purchases. And while out and about once they are added as authorized users to your account.