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I want to do as much as I can to get my generation started off on the right foot. Maybe one day, Gen Z can be known as the generation of good credit scores. And, money management is an important life skill that even some adults struggle with from time to time. 

The Feet

With all things, you must start at the beginning. While playing sports, my dad would always tell me that everything starts with the feet. Like with most things, and it pains me to say this, he was right. In softball, my foot position was a critical factor in whether I had a good athletic stance and what angles I was going to be able to take in order to get to a ball.

What I am getting at is that before we get to the how, we must first begin with the basic understanding of credit, “the feet” if you will.

            The basics of good credit:

  • Pay your bills on time.
  • Stay within your budget, or even better, stay below it.
  • Develop good money habits.
  • Know the difference between credit and debit cards.
  • Learn how to save.

All of these, in turn, and with practice, will help solidify your child’s knowledge of credit.

CNBC published an article stating that kids will start to develop their behavior about money by the age of three. So, it is really important to get kids started on good habits at an early age.

Paying your bills on time will help keep the interest rates on your credit card bill low and will build that credit up. You can also develop these habits by giving your kids chores, for which they earn money in return, which is generally how the real world works – so I’m told. This will show them that they need to work in order to earn money. Maybe one month, let them help you make a budget, or better yet, help them make a budget using the money they earned through performing chores. This way they can get a hands’ on learning experience about saving, paying bills on time, and much more!

When talking about debit and credit cards it is important to drill in the fact that using your credit card is buying things with borrowed money. Debit cards are using your actual money to buy items. Using money you have already earned can help build good spending habits while credit cards can either help build credit or it can drop it.

The How

Now the question is, “How can I help my kid get started building their credit?” Well, there are many options to get them started down the right path.

First, you can start by opening a savings account for them, like our Central Youth Savings account. This account will not build credit, but it will help them learn saving habits. Store all of that hard-earned chore money in the bank. And, teach them to make deposits as well as withdrawals.

Between the ages of 13 and 14, or once your child gets their first job, you can help them open a checking account. Take time to teach them how to keep a check register, balance to their monthly statement and keep an eye on their account through on-line banking. Along with this checking account, you can get them a debit card. This will help reinforce the lesson that they are using their own money to buy items and will also give them the real-life experience of setting and following a budget.

Every teenager wants a car after they get their permit. Believe it or not, cosigning on an auto loan can start building your child’s credit and it will also add to yours. This option is a great way to start building their credit and give them a sense of responsibility. As the parent, by cosigning this loan, you could help your kid get better loan terms and also improve the chances of getting the loan itself. Keep in mind, even though this vehicle belongs to your child, you are still responsible for the debt. If there are any late payments or defaults on the loan, these will affect not only their credit score, but also your own.

 Once they have a good grasp on their debit card you could add them as an authorized user on your credit card. While considering this option, it is always a good idea to make sure your credit card company offers this option. Some credit issuers will not report authorized user accounts to credit bureaus. Provided that your issuer reports to credit bureaus, you can continue to build your credit while also starting to build theirs! Since they are on your card, you will be able to review their charges. But, keep in mind that they are only an authorized user and you are still the one responsible for making the payments. Set it up so your kids have to pay you back. Now, an important thing to remember is that while adding an authorized user can be good for both of you, it can also be bad. Take this opportunity to remind them why you should not make any late payments and don’t max out a credit card.

Finally, when you think it is the right time, you can have your kid apply for a credit card. Remind them of the fundamentals and responsibilities of owning this card. With this credit card, your kid can start earning their own credit history, which is important later if they want to buy a car or a house. One of the many upsides to building your kid’s credit while under your roof is that it can help them leave your house (sooner if desired) with a good start to their credit history! Can we say best Christmas present ever?!

All Together Now

Hopefully this article has given you some insight on why you should be teaching your kids the basics of credit as well as some ways to start building their credit. Always remember that everything starts with the feet and everything takes practice and repetition. Start small. The end goal, after all, is to help them get started down the yellow brick road that leads to the land of good credit!

Helping Kiddos Get Good Credit
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