How to Help Your Child Build Excellent Credit Before Graduation
I’ll never forget when I was 21 I went to buy a car and couldn’t get financing. Not because I had bad credit, but because I had no credit at all. Up until that point in my life I paid cash for everything. I didn’t realize having no credit would prevent me from getting any type of loan. I just assumed everyone started with good credit and either improved it or destroyed it. That clearly wasn’t the case, so I had to learn how to establish credit with no credit history.
At that point, I knew when I had children I’d need to teach them about finances and how to build credit for the first time. So once I had children one of my many goals as a parent was to help them build excellent credit before graduating high school.
The last thing I wanted was for my children to start their adult life in debt with poor credit because once those holes dug it’s not easy to get out of it. Our oldest son had excellent credit by the time he graduated high school and I’m confident our younger one will too. Here’s how we helped our children build excellent credit.
1. Financial Responsibility
Build excellent credit tip #1, financial responsibility. Teaching children financial responsibility starts at a young age. It sounds cliche, but a lot of kids think money grows on trees and there’s a never-ending supply. My children truly didn’t understand the value of a dollar until we made them spend their own money to buy things they wanted.
One of my children could spend every dime he had while the other would buy something and before getting to the car wanted to return it. No matter if you have a spender or a saver you need to start teaching them the difference between “needs” and “wants.” Yes, technically it’s their money, but this is where parents need to step in and teach their children how to make good financial decisions.
2. Odd Jobs
Build excellent credit tip #2, Odd Jobs. We never gave our children an allowance, but we did have them do odd jobs for money. From pulling weeds to painting a room, whatever was age-appropriate at the time. We also always set a budget of how much we would spend on the things they needed. If they wanted something over the budget they had to cover the difference. Once they were old enough to get a job they did. Even if it’s only one or two days a week for a few hours it teaches responsibility.
3. Open a Savings Account
Build excellent credit tip #3, Open a Savings Account. Once they start saving money it’s time to open up a savings account and deposit their money. This is where they learn how to deposit money, withdraw money, and balance a checkbook. We opened up a student virtual wallet account for our children through PNC and it has three categories; spend, reserve, and growth. I love the categories and it’s one more way to teach children about financial responsibility and how to manage their money. If they’re saving for something specific they can deposit money into their spend account and if they want to save they can deposit it into their growth account, which pays interest.
4. Authorized User
Build excellent credit tip #4, Authorized User. I never thought about adding my children as authorized users on our credit cards, but one of my clients recommended it. This alone started establishing credit for both of my children. By the time my oldest graduated high school his credit score wasn’t just good, it was excellent solely because he was an authorized user on two of our credit cards.
Now, you’ll only want to consider this option if you have great credit. If your credit isn’t great it could negatively impact an authorized users credit. Also, keep in mind the cardholder is responsible for all charges. So if your child is an authorized user and you decide to give them the card, you’ll be responsible for any charges they make.
5. Open a Credit Card
Build excellent credit tip #5, Open a Credit Care. Once they are old enough it’s time for them to open up a credit card in their name. The odds are they won’t have to look far because they’ll start to receive countless credit applications in the mail. This too was another teachable moment that we discussed with our son. There are four main factors we looked at; fees, interest rate, limit, and rewards. For me, the interest rate is irrelevant because they should never be accumulating debt, but fees and rewards do matter. There are a lot of credit cards out there with no fees, but great cashback rewards.
As I Realtor I have seen countless people get denied for a mortgage. The sad part is a majority of them thought they had good credit, turned out they didn’t. Had these people been taught about financial responsibility and improving their credit the outcome may have been different. Unfortunately, spectacular credit isn’t given to us, we have to build excellent credit on our own.
This is why it’s so important we teach our children financial responsibility at a young age and keep teaching them into adulthood. No two children are alike, so you may have to tailor how you teach financial responsibility, but it can and should be done because it’s one of the best gifts we can not only give to them, but show them firsthand how to build excellent credit and the benefits that come with it.
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Additional Tips to Build Excellent Credit
- As parents, it’s our job to help our children build their financial future. Never assume they will learn this in a class or take it upon themselves to learn on their own.
- There are always ways to increase your credit score and sometimes it comes down to not doing things. Things like opening new credit card accounts or not maxing out a credit card. It’s always best to pay your credit cards off completely at least once a month.
- Wondering why credit scores are different across the different credit bureaus, if so here are the 3 main reasons credit scores vary.
About the Author
Top Wellington Realtor, Michelle Gibson, wrote: “How to Help Your Child Build Excellent Credit Before Graduation”
Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.