It is never too early to start teaching your children the basics of money management. And one of the most important things to understand is how to use credit. By educating your children at an early age, you can insure that they become financially responsible and credit savvy. They will then have the tools to succeed financially. Here are some easy ways to help your children build credit:
- Open a savings and checking account in your child’s name. The first thing to do is set up banking accounts, especially a checking account. Although just having these accounts will not build credit, it is important to establish solid money management skills. Educate your child on the dangers of overdrawing accounts, bouncing checks, and making late payments, and have them use a debit card to practice using credit skills safely.
- Get a credit card. Once they are responsible debit card users, they can start building credit. It can be hard to be approved for most credit cards as they have no credit, but there are several options to get them started. With a secured credit card, your child will have to secure their credit line with a deposit. Once they have the deposit, they can use the card to build credit. Student credit cards, on the other hand, are actual credit cards. They are much easier to get approved for, and they even offer many rewards for the things that students buy. Store credit cards are also easy to get approved for, but they must be used responsibly.
- Add your child as an authorized user on your account. Another great way to build credit is by adding your child as an authorized user on your account. All you need to do is call your credit card issuer, and your child will be able to get the benefit of the credit card without having the official responsibility. Your child can then build his or her credit score by using your credit card.
- Put a utility account in your child’s name. Before your child leaves home, you can always put a utility account under his or her name. Whether it be phone, electric, or gas, monthly on time payments will insure that your child’s credit score improves. Just be sure to pay these on time so you don’t end up lowering their score.
- Co-sign a loan with your child. This is an easy way to build credit and add a different type of credit (installment versus revolving) to your child’s history. Lenders like to see a mixture of different credit types, so having both types will help them even more. So, if your child needs to get a student loan or a car loan, think about co-signing the loan. As long as the payments are made on time, the loan will be able to improve both of your credit scores.
Don’t wait until it’s too late. Follow these tips, and you can start your child off with a great financial foundation by helping them build credit in their own name!
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