Give your Child a Head Start with Credit

Help improve your child's credit score

If you’re a parent, before you know it, your children will be going out into the world. One of the best things you can do to help prepare them for life is by helping them establish a good credit rating and track record. Here are some ways you can start your child on a path to a healthy credit score.

Help them open a savings and/or checking account

Work with your credit union to help your child open a checking and/or savings account that comes with a debit card. See what restrictions can be set in place to set up a payment limit, prevent overdrafts, etc. Explain the differences between Savings and Checking, and define the purpose of each, and ensure your child knows how to manage their finances online or via a mobile app. This will provide a great way for you to gauge your child’s financial responsibility in a safe environment before giving them a dangerous amount of financial freedom.

Responsibly and legally establish credit in your child’s name

A disturbing trend of parent-child identity theft has become unfortunately quite common, which is essentially crippling your child as they enter financial independence. On the flip side, savvy and responsible parents have been working to ensure that their child leaves the nest with a really positive credit score, by cosigning with the child on their first automobile, or a very responsibly managed credit card, and then making sure that a low balance is maintained and regular payments are made, all of which contribute to developing a good credit score.

Let your child pay the bills!

Another option is to put one of your utility bills in your child’s name. Ensure that all payments are made on time and in full! This will help your child establish a credit history, and get them started on the front foot. If your kid has an income, why not allow them to take on one of your smaller bills? This may sound like an overly strict parenting measure, but you could (and probably have been) compensate them in the form of pocket money. The idea though is to make them responsible for paying regularly and meeting a deadline.

Research credit card options

If you’re not sure of your child’s responsibility with a credit card, talk to your credit union or consider a credit card that allows careful management. This will allow you to set up boundaries, and help your child explore their financial freedom in relative safety. If your child likes to shop at a store that has a secured debit card program, this is another option. But make sure you know how much your child loads onto the card.

Help them manage their credit

If you do sign your child up for a credit card, make sure they understand they must stay within their credit card limit, which will probably be quite low for a first time user. Explain that running up a high bill and paying only the minimum monthly payment, even if it’s on time, will not help their credit score, and will lead to high interest. The credit card use, or loan history, is reported to the credit bureaus every month, and it can take a responsible user several years to build a respectable credit rating.

Use caution, be safe!

As your child is without an income, anything that you cosign for could come back to haunt you should your child default, so be careful and make sure you don’t bite off more than your child can chew!

Your experience with each child will be different—one may need to be held back on their first shopping spree, another may be more hesitant about using their newfound credit. It’s important that you keep close tabs, explaining what they need to know, or just ‘putting the brakes on’ for a while until the child gains more understanding.

Whatever you decide to do, come in and talk to one of consultants. We’ll be glad to offer any advice and help you get your child on the right path to financial responsibility.

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