Building credit is an important conversation to help guide and encourage financial success for your teenager. Does your teen have a part-time job? This is a good time to start teaching them about building and maintaining their credit.
Building credit tips my spouse and I used with our teenage daughter:
- First, open a student youth checking account with an attached debit card. This allows them to deposit their earnings, save and monitor their account balance. Thus, teaching them how to spend wisely.
- Once they learn how to use a debit card; consider adding them as an authorized user on your adult credit card. This allows you to set a spending limit (only selected credit cards) and receive message alerts if they have gone above their limit.
- Understanding what credit is: Explain that they are given a specific spending limit. Also, tell them that using a credit card means they are borrowing the money and must pay it back within a specific time frame.
- Paying on time: Tell them that paying off the full amount of the credit card bill before the due date, helps to build their credit score. Minimum and partial payments will involve added interest to be paid. Late payments will involve extra penalty fees and have a negative impact on their credit score.
- Monitoring expenses: Teach them to review their expenses regularly. Don’t forget to educate them on identity theft. Helping to prevent fraudulent activity in their accounts is very important these days.
Speaking with your teenager about building credit continues the conversation started per Laura Bereiter’s previous article titled, Family Discussions about Money. By fostering open and honest communications about finance you encourage responsibility and independence. In turn, making good financial decisions will build a strong foundation for their future.
