Every parent wants what’s best for their kids, including a good future. Setting a good credit score for your child is one of the ways to secure their future. But kids don’t have any financial obligations, and money management is something they know nothing about.
It’s your duty as a parent to couch them on financial planning and the importance of a good credit score. Here is a simple guide on how you can help your child build a good credit score.
1. Start Educating Them Early About Finances
If you feel that your young adult is ready to build credit, don’t hesitate to take them through it as early as possible.
Show them simple habits which can help them maintain an excellent credit score. Some of the simple tricks you can teach them to include paying bills on time, spending below their means, and avoid opening more accounts than they can manage.
Show them these at an early age so they can grow up to become responsible about their finances.
2. Add Your Kid as an Authorized User on Your Credit Card
Add your kid as an authorized user of your credit card to see how responsible they can be with their spending. By doing so, you’ll also be helping them to establish a good credit record.
Before you add them, ensure you confirm if your kids’ activities are reported in the credit bureaus. If it’s reported, this is a good way to get them started with good credit history.
If your young adult is authorized, they can independently use your card for online purchases. Make them responsible by taking them through the credit card statement. If you feel like they’re not accountable and mature enough to handle credit cards, deny them access to the account.
3. Teach them Real-Life Consequences of Bad Credit
Teach your kids the real consequences they’d face if they had a bad credit score. Let them know why not being able to access loans when they badly need one can mess them up. Make sure they’re conversant with poor credit situations.
But they must also understand that if you have poor credit, you can still qualify for a bad credit loan. Your children should understand the advantages of good financial management and the repercussions of having a bad credit score.
4. Demonstrate To Them How Credit Card Works
You should explain how a credit card works to avoid any misconceptions among them. They should understand that they should repay their credit cards early to develop a good credit score. This will also help them know what they can do and what they can’t do with a credit card.
5. Let Them Open a Checking and Savings Account
Kid’s checking and saving account introduces them to the financial world. Help your children to open an account while they’re young and show them how it works. They can make good use of the savings account by depositing any allowances and presents they receive in monetary value.
Their credit score will improve as the account grows. Talk to them about the penalties in case they overdraw or bounce checks. This will enable them to be more responsible for their spending.