Have you struggled to manage your credit in the past? If you have, it's likely that you would want to help your child avoid the same fate. Negotiating young adulthood is never easy especially for young people who are ready to flee or have left the comfort of your home. Having good credit could make their experiences much easier because they will have less issues getting a car loan and they likely will not have to pay higher interest rates for the loans they get. As a parent and grandparent, one of the best things you can do for your child or grandchild is to educate them about how to create good create and take the responsibility to pay their bills on time. Don't bail them out - help them with education and discipline.
Below are a few pointers on how you can put your child or grandchild on a path to good credit.
1. Open Savings and Checking Accounts
A savings account is an easy way to introduce your child and grandchild to financial responsibility with little risk involved. However, just having a checking account and a debit card does not improve your child’s credit score. The secret to good credit rating is having solid money management skills from a young age. Don't just open the savings account and leave it at that. Help them regularly deposit the money they earn. Teach them to pay for purchases using their debit card or good old-fashioned CASH. This way you'll teach them responsibility and accountability, and how to spend wisely and avoid declined debit card penalties.
2. Encourage Your Teen to Get a Job
For your child or grandchild to be a responsible adult, they need to develop a solid work ethic. High schoolers can get a part-time job, which will help them learn the value of hard work, how to earn money, enjoy the thrill of having their savings grow and feel the disappointment of blowing all their savings because of a wrong decision they made. Other than that, having a steady income can come in handy when they're ready to apply for their credit cards. Credit card issuers have to verify applicant's source of income before issuing a credit card.
3. Add Your Child as an Authorized User on Your Credit Card
If you think your teen or young adult isn't ready for a credit card, you can add them as an authorized user on your credit card. BE AWARE, though. The issuer will allow it as long as your credit habits are sound. Making your child or grandchild an authorized user may be a good way to help your child or grandchild establish their credit record. Seriously monitor all purchases, though, because YOU are the responsible party. Don't take this step quickly or lightly. Establish solid and specific rules about what are acceptable and unacceptable purchases. Be ready to pull the plug on the card, if necessary.
You're the one liable to pay back the borrowed money, so make sure you get full payment from your child or grandchild to pay off their purchases. By doing this, you teach them to be responsible and they build a credit history.
4. Put One Utility Bill in Their Name
If your teen or young adult lives at home, it might be a good idea to let them pay at least one utility bill around the house. While paying bills on time aren't reported to credit bureaus, failing to pay is reported. Teach your kids and grand kids how to develop a discipline to pay their bills on time. While paying utility bills on time doesn't build credit, it's an opportunity for them to learn how to budget and pay for their bills. It's your job and honor to teach them discipline, responsibility and accountability. It's a great bonding experience, too.
5. Have Your Child List Your Home Address as Their Main Residence
This is especially true for children who have already gone off to college. Lenders want to see stability when it comes to an individual’s living arrangement, but college students change their address at least once a year. Having your son or daughter list your home as their residence will make them more favorable when applying for a credit card than having to list four different addresses within four years.
The above are just a few tips to help you on your journey. The idea is to start early and go slowly. Let us know what steps you have taken to help your children and grandchildren to be financially responsible. Helping your child and grandchildren build credit is a noble goal, and there are many ways to achieve it. Schedule time for you and your family to meet with your financial adviser Bob Lawrence (714-368-7494) and discuss plans to help them with money. We're happy to share your successes with our client family. We're all on this Earth to help each other - let's be kind and share. Enjoy today and be extraordinary every day -- Stephanie Lawrence
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.