As an adult you know that having good credit is important. As a parent, one of the best things you can do for your child to make their life easier is by educating them about credit from an early age. Having good credit will help them start out in their financial life on the right foot, and make things like getting cars loans much easier, and probably less costly.
Here are some tips on how you can put your child on a path to good credit.
1. Open Savings and Checking Accounts
A savings account is an easy way to introduce your child to financial responsibility with subjecting them to much risk. However, just having a checking account and a debit card does not improve your child’s credit score. The secret to good credit rating is having solid money management skills from a young age. Do not just open the savings account and leave it at that, help them regularly deposit the money they earn. Teach them to pay for purchases using their debit card. By doing this, you will be teaching the child how to spend wisely and avoid declined debit card penalties.
2. Encourage Your Teen to Get a Job
For your child to be a responsible adult, they need a good work ethic. If they are in high school they can get a part-time job which will help them learn the value of money, feel the thrill of watching their savings grow, and even experience the disappointment of seeing their savings evaporate because of a wrong decision they made. Having a steady income can also come in handy when they are ready to apply for their credit cards since credit card issuers have to verify an applicant's source of income.
3. Add Your Child as an Authorized User on Your Credit Card
If you don't think your teen is ready for a credit card, you can usually add them as an authorized user on your credit card. This is a good way to help your child establish their credit record. Even though you are the one liable to pay back the borrowed money, it helps if your child pays off their portion. By doing this, you are not only teaching them to be responsible but also growing their credit as you use and pay off the card each month.
4. Put A Utility Bill in Their Name
If your teen is still at home, consider having them pay at least one utility bill around the house. While paying bills on time is not reported to credit bureaus, failing to pay is. Therefore, paying bills on time provides an opportunity for them to learn how to budget and pay their bills when they don't have much at stake.
5. Have Your Child List Your Home Address as Their Main Residence
This applies to children who have moved away to college. Lenders want to see stability when it comes to an individual’s living arrangement, but college students change their address at least once a year. Having your son or daughter list your home as their residence will make them more favorable when applying for a credit card than having to list three different addresses within three years.
Helping your child build credit is a noble goal, and there are many ways to achieve it. The above are just a few tips to help you on your journey. The idea is to start early and go slow.