What to Teach Your Teen about Building Good Credit
Parents work hard to give their children the skills that they will need to survive once they leave the nest. They often assign chores to teach responsibility and give lectures on every subject from healthy eating habits to choosing a life partner. They spend many hours in the passenger seats of vehicles with muscles tensed as they try to patiently teach their teen to drive. While all of these lessons are necessary, parents often neglect to educate their precious children in financial matters. The teen years are a perfect time to begin training young people in the skill of building good credit.
Besides being taught the basics of good budgeting, parents can make sure that teenagers know that good credit scores are built in tiny increments. Teenagers need to be instructed in the factors that can impact their own future credit worthiness even before they leave for college. The following are lessons that need to be imparted before teens leave home and begin to manage their own finances:
• Paying bills on time is a requirement, and delinquent payments will do damage to a credit score that can last quite a while. This includes the payment of rent, insurance, automobile loans and utilities.
• A first credit card should be a secured card, the kind where money is placed on deposit before the card is activated so there is no possible way to spend beyond the limit.
• Any credit card balance should be paid in full at the end of the billing cycle to avoid paying high interest rates.
• Credit card interest rates are never reasonable enough to use for borrowing money, and these cards should never be used to get something because cash is unavailable to buy it.
• Store credit cards rarely have any effect on a credit rating, and the sign-up bonuses offered will not offset the high interest rates charged. Teens should resist the temptation when bonuses are offered to get them to sign up for a new card.
• Being added on a parent’s credit card is a controlled way to begin establishing a teen’s own credit with very little risk.
• Reading the terms on credit card agreements and other loan documents is not negotiable, even if the print is so tiny that it takes a magnifying glass to decipher it.
The most difficult financial lesson that parents must teach their sons and daughters is the ability to delay gratification of desires until the teenagers can actually afford to fulfill them. This is most easily done by allowing children and teens to earn and budget at least a part of their own spending money. The toughest part for parents may be forcing their children to wait for that fulfillment, refusing to give in or bail them out with extra cash. Those who do not give in, however, may be rewarded with adult children who know how to handle their own finances responsibly.