As an adult, you probably already know the value of building your credit. You know there are various ways to do it, and also that it’s a gradual, ongoing process. What you may not realize is how you can help your kids get started with building their credit before they’re legally adults.
Helping your kids lay the groundwork for building their credit is something useful you can do for them. They will likely thank you someday when they can more easily take out loans, get a mortgage, or do any of the other things that are possible with excellent credit.
3 Tips & Tricks To Build Credit For Your Kids
Let’s talk about three specific ways to help your kids get started on their credit-building journey.
1. Explain Credit Cards
Most adults have credit cards because they can make life a lot easier. They’re a payment form that can be used to attain all kinds of goods and services. It’s critical to use them carefully, though, or you might have to consolidate credit card debt at some point in your life.
Talking to your kids about credit cards and how they work can be one of the first ways to encourage financial responsibility. You might even allow them to become an authorized user on one of your accounts.
You can explain how you’ll let them use the credit card and monitor their spending habits. You should also make a point of showing them your card balance each month and how you pay a credit card bill.
Using a credit card as an authorized user in a limited capacity will begin to build their credit, and show them how to be responsible with one. It might also be a smart idea to relate to your kids any missteps you’ve taken with credit cards so they can conduct themselves differently.
2. Student Credit Cards
If you’re not comfortable adding your child to one of your credit card accounts, you may decide to wait until they’re headed to college. At that point, you can cosign when they apply for a student credit card.
These student cards usually have lower spending limits than general-purpose cards, so they’re a safer way for a young adult to start learning how to responsibly use one. To help your child’s credit, encourage them to use it sparingly and pay off the balance in full and on time every month.
3. Federal Student Loans
If your child is approaching college age, you might encourage them to apply for a federal student loan. Making monthly payments on that loan is a way to build credit, and a student as young as 16 can apply for one.
If you go this route, though, realize that federal student loans only go to those who need them. If you’re making enough money that you can cover your child’s tuition without having to take out a loan, you won’t be able to use this credit-building option.
Take the Mystery Out of Building Credit
Many ways exist to build credit for your kids. Teaching them about how credit cards work and letting them become an active user on one of your accounts is a suitable way to start. You can also cosign when they apply for a student credit card. Not all kids can apply for federal student loans when they’re getting headed off to college, but if your family’s income makes that possible, talk to your child about the potential credit-building benefits.
Aside from all that, simply talking to your kids about building credit and monetary matters can help them a great deal. You’re preparing them for independence by showing them how to conduct themselves financially. With these simple but effective techniques, your kids can succeed once they strike out on their own.