Finance

Put your child on the path to building a solid credit score

One of our main responsibilities as parents is to teach our children lessons that will serve them well in life long after they become adults. Like establishing healthy eating and exercise habits, helping them learn to take care of their finances is one of the most valuable pieces of wisdom we can pass on to our children. When they’re young, you may want to start with the basics of budgeting and saving, which are key to building financial discipline. As they get older, it is also essential that children are taught how to build and maintain a good credit score.

Credit is complex by nature, but the building blocks for a solid credit score are actually quite simple. Here’s a primer to help your kids get started on the right foot.

Make your child an authorized user on one of your credit cards

This can be done before your child can get their own card, giving them the ability to use the card for their own purchases. You will still be responsible for paying the credit card bill, but your child’s credit score may benefit from being associated with your good credit record. It can also serve as an initial test of your child’s credit performance. Set expectations that they are responsible for paying you back any expenses they accrue.

Let them build their credit when possible

There will come a time when your children will qualify for a credit card. Again, it’s important to emphasize the importance of paying bills on time each month. Ideally, they will pay off the entire amount monthly to avoid high interest charges. They should also make timely payments on any other debt such as student loans, store credit cards, and even expenses such as utility bills. Note: using a debit card does not contribute to building a credit score.

Encourage them to be careful in how the credit is used

Achieving a good credit score is a bit of a balancing act for younger people. They must obtain and use credit in order to accumulate a history that will reflect on their score. However, they want to avoid overdoing it. Make sure your child knows not to take a risk by using a loan to pay for large expenses that may require a long repayment period or taking out more than one or two credit cards at once. Managing credit is a new experience for most people just entering adulthood. By following these steps, you have the opportunity to set your children on the right path.

Bronwyn L. Martin is a financial advisor and chartered financial consultant with Martin’s Financial Consulting Group, the financial wealth advisory practice of Ameriprise Financial Services LLC. in Kennett Square and Havre de Grace, MD. She specializes in financial planning and fee-based asset management strategies and has been in practice for over 22 years. To contact her: www.ameripriseadvisors.com/bronvin.k.martin.

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