Helping your Children Build Credit

Imagine that your child recently landed a part-time job and is starting to accumulate some spending money. The importance of teaching your children how to budget at a young age cannot be overstated, but what about building a solid credit rating that will lead to a good financial foundation? When is it a good time to teach them about credit?

Developing a strong credit history at a young age

The perks of having a good credit score as an adult are obvious, but it is just as important for young adults/recent college graduates. The better your credit score is, the stronger the likelihood of being approved for a credit card or loan, including the potential for more attractive interest rates. This is also important when it comes to student loans and refinancing them. If your child wants to move out on their own after college, landlords take credit scores into consideration when deciding whether to approve a rental application. Further down the line, buying a home, buying or leasing a car, making major purchases, and other large expenditures often depend on one’s credit strength.

It’s never too early to begin thinking about developing one’s credit history. Here are some tips to consider when discussing credit with your children:

Becoming an authorized user

If you and/or your significant other both have strong credit, you may want to add your child as an authorized user of your credit card. Demonstrating responsible credit habits, including paying off the credit balance on time, will be reflected in the authorized user’s credit score, improving their ability to apply for credit independently.

Small purchases

Individuals can’t apply for an unsecured credit card of their own until they’re 18 years of age. Once your child is of age and financially ready, he or she may need some guidance to select a credit card. There are many credit cards suitable for new credit card holders that have limited fees, rewards options, and helpful benefits. Initially, using the card only for small purchases, such as gas or groceries, will help your child understand the connection between purchases charged and the subsequent monthly bill that must be paid.

Paying student loans

If your child has taken out student loans, many times lenders will report these accounts to credit bureaus. Regardless of the timing of the loan payments, as long as the payments are submitted on time, this helps in establishing credit.

Schedule an Appointment with a Financial Advisor

Introduce your child to a financial advisor so they will have a resource they feel comfortable with for objective guidance and answers to financial questions they may have. Starting out with the right financial plan and advice is often the key to building a sustainable future — for the rest of their lives.

For additional tips on how to help your children establish credit, reach out to an advisor at Southwestern Investment Group. We’re here to help answer your questions so that you and your loved ones can feel financially confident.

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