Building a good credit rating may not be a number one priority for your teen at first but if you explain the link between credit and getting a car loan or a job offer, you will likely have their full attention. It’s never too early to start building a solid credit rating but many adult credit-card holders still don’t understand how to keep their credit score up. Here are some tips on what to teach your teens.
The starting line
Your teen may not qualify for his or her own credit card at the start. That is not a show-stopper. You can add them as an authorized user on your card, and that will still count toward their credit rating. Ideally, they will be building their own positive credit history, so the next step would be acquiring a basic credit card, or a secured credit card, the sooner the better. It’s important to choose the right card for your teen. They may qualify for a “student credit card”, or a basic, low-interest plan that doesn’t offer any special points or gimmicks. Points cards tend to have higher interest rates. Nothing comes for free. It’s never too early to learn that lesson, either.
Just the basics
Teach your teen that the key to building a solid credit rating is to use the credit card often, for small purchases. Don’t put anything major on credit unless it is absolutely necessary. Any larger purchases should be spread out over the year. And most importantly of all, pay the balance in full at the end of each month, if at all possible. Make sure your teen pays all other bills off on time as well, including his or her cell phone bill or student loan. Everything credit related could show up on their report. Teach your son and daughter about the consequences of missing payments and the implications of a bad credit report.
Share your experiences
You’ve been through this before, so you have the benefit of experience. Share your credit history with your teen and they will benefit from the lessons you have learned. Teach the benefits of consolidating credit cards, but advise your teen to stick to just one credit card for now. Remind him or her that any credit shows up on their report, including cards for individual stores. It’s better to just use one; multiple applications can complicate credit history and drop the score. Remind your son or daughter that their friends are responsible for their own credit, and co-signing for them is not a good idea.
Teens should be using credit cards in order to build a strong credit rating and to set themselves up for a solid financial future. The card is not ‘free money’ and should be treated accordingly. Teach your teen not to spend what they don’t have. If they start using credit properly when they are young, they will develop good habits to last a lifetime.
What credit information do you wish you got as a teenager?