Parents want the best for their children, and when the time comes, having a decent credit score is one of them. Instead of trying to build your teen’s credit history for them, it’s crucial as a parent to establish a solid financial foundation and teach proper money management skills.
A vital aspect of adult life is credit. When your child reaches adulthood and is ready to rent an apartment, buy a vehicle, or get a mortgage, they’ll want a credit history.
They may be able to save thousands of dollars throughout their lifetime with cheaper interest rates and more favorable terms if they have a solid credit history, instead of looking for credit cards not guarantees with guaranteed approval for bad credit without deposit.
As the parent of a high school or college student, you can learn how to build a credit score for your child. Developing a strong credit score will help you succeed.
Teach your teen the basics of credit cards
Unfortunately, not every high school or college offers courses in personal finance. For this reason, it’s a good idea to sit down with your child and explain to them how a credit card works and how high credit could benefit them in the future.
Your child needs to be educated about the repercussions of having bad credit, having too much credit card debt, and the pitfalls to avoid when using credit cards. Keep things short and to the point when talking to kids about credit; if you give them too much information, they may get confused.
Use a prepaid card to try it out
Consider giving your teen a prepaid card rather than opening a credit account. They can use a prepaid card to make purchases while they get used to living within their means.
Prepaid cards should only be used for a short time until your teen has shown that they can manage their finances responsibly and you feel they are ready for a credit card since they has fees and cannot establish your teen’s credit history. Prepaid cards are best suited for young teenagers who are still in high school and trying to learn how to manage their money before heading off to college.
Set up a current account
Most banks and credit unions offer checking accounts for students or teenagers. Usually, these accounts have cheaper costs than regular accounts. You can encourage your teen to get used to making deposits and keeping track of their finances by setting up a checking account for them. Add a debit card connected to your teen’s bank account when you think they’re ready.
You can sign up as a co-signer on your teen’s account if you want to keep tabs on their spending to make sure they’re making the right decisions. However, keep in mind that if you co-sign for your teen’s checking account, you will be responsible for overdrafts.
Apply for a credit card for your teenager
It’s time to take the next step and apply for your teen’s first credit card so they can start building their credit history after showing responsibility with a prepaid card or checking account and debit card. debit.
The Credit Cards Act 2009 states that anyone under the age of 21 cannot be granted a credit card without a co-signer or proof of income. You will need to co-sign your child’s application if they are not employed.
On your credit card, you can also add them as authorized users. If your child is still in high school, this is the best choice because it can help them build a solid credit history while they live with you and you have a greater influence on their behavior. Check to see if your card issuer automatically sends payment information to the three major credit bureaus (Experian, TransUnion, and Equifax) before you consider adding your child to your account.
You may want to get a joint secured credit card
You can get a joint secured credit card if you want your child to have their credit card, but are worried that it will damage your credit or theirs. They can limit the amount of credit available on the card and help them avoid overspending by doing so, as secured credit cards require an initial deposit which acts as a credit limit.
Secured credit cards can still help your teen establish credit while giving you some peace of mind, although they often have higher costs than standard cards. If cardholders maintain strong financial habits with the card, some secured credit cards will convert them to regular unsecured credit cards.
Give a positive example
Teach your child to check their credit history once you’ve created a credit card for them or registered them as an authorized user on your card. To prepare them, you might want to show them what your credit reports look like.
Setting a positive example for your high school or college student is essential because teenagers observe and imitate the habits of their parents. Live within your means, pay your credit cards in full and on time, and try to avoid incurring new debt. Your child will be more likely to adopt sound financial practices if he knows yours.
It’s never too early to start teaching your kids about financial responsibility. According to an Investor Education Foundation survey, only 30% of Americans say they understand how to build credit. This means that the majority of people enter adulthood without a clear understanding of how to manage their finances. As a result, they may end up making costly mistakes that could hurt their credit score.
Help your child transition into adulthood the right way by teaching them about credit and how to build a good credit score. Explain how paying bills on time and maintaining a good credit history can lead to lower interest rates and better opportunities in the future. By instilling good financial habits now, you can help your child succeed later in life.
Teaching your kids about credit cards at a young age is crucial, as is rewarding positive behavior that will help them build credit in the future. Good habits are formed early, often even before your child is old enough to drive.
However, experts agree that it is better for your children to make mistakes now, when they are still young and have few responsibilities, rather than later when they may have their own families and bigger bills.