Choosing the right ways to prepare your teen for the financial responsibilities of adulthood can be daunting. Yet studies show that children who are taught strong financial habits while they’re still young are more likely to grow up to be savvy with their money.
A crucial part of learning financial independence is building good credit. Your teen’s credit score could be what helps them qualify for loans, better interest rates, auto insurance, rental applications, and even some types of employment.
There are plenty of tricks and tactics you can try, but in reality building up your teen’s credit is all about teaching them to be responsible with their money. When they learn financial responsibility, the result is that they’ll start building good credit.
Here are some tips for teaching your kids to handle credit wisely.
Add Your Teen as an Authorized User
Add your young adult as an authorized user on your credit card. Teach them about spending and payment responsibilities. Explain the charges on your credit card statement and add up the amounts they’ve accrued on your credit card account.
It’s normal for some teens to go crazy with spending the first time they get a credit card, but they need to understand the importance of repaying what they spend. Help them find positive ways to pay off the amounts they spend.
Choose the Right Card
If your teen has been responsible with spending and repaying the debts incurred as an authorized user on your credit card, encourage them to apply for a card of their own. Compare the different types of credit cards available and choose the right one to suit your young adult’s needs.
Check things like fees, interest charges, rewards programs, and other options. In some cases, a student credit card can be ideal. In other cases, it may be wise to choose a credit card with a low annual fee that offers interest-free days on purchases.
Even teens can be inundated with credit card offers from banks, so it’s important to explain the importance of choosing the right card. Your teen also needs to realize that it’s not wise to accept all of those offers that come in from the banks.
Too many inquiries showing on a credit report can cause your teen’s credit score to suffer. No matter how many offers arrive from the bank, encourage your teen to avoid the temptation to sign up for all of them.
If your young adult has already succumbed to the bank’s offers and accumulated some debts, you could check here for ways to help them get their finances back under control.
Teach Responsible Card Management
Let your teen know it’s okay to use the credit card for small purchases, as this can help build up their credit. Small recurring expenses are also okay to put onto the credit card, such as Netflix subscriptions or groceries. However, you also need to explain the importance of repaying the amounts spent in full each month.
When it’s time for your teen to apply for student loans or other forms of credit, having a credit card statement showing no late payments goes a long way to establishing their level of financial responsibility.