A Different Type of Child Credit
In an (almost) cashless society, credit is king…or so it can often feel this way. A credit score is linked to a person just like their driving record or GPA. From applying for a loan to applying for a job, a decent score is necessary to thrive or at least not be squashed by outrageous interest rates. After conquering the feat of earning your own great credit, possibly learning the hard way, you may now face the question of how you can help establish and raise your child’s or children’s credit score to help set them up for financial success.
If you are interested in pointing your children in the right direction, begin with education. Smart money decisions are learned characteristics that begin at home. Money does not grow on trees and purchases made with credit cards must be repaid. As your child watches you swipe your “magical card” to pay for things, cultivate the knowledge of what credit is and that it must be repaid, or face consequences. Explain how you will receive a bill for the purchased items/services at the end of the month. Then you will spend your real money to pay the bill. It might be fun to associate lines on your statement with physical items purchased during that period. A way to practice this concept is having your child become a library member. They can “swipe” their library card to borrow books/DVDs/games at their leisure, but will have a due date and penalties for late fees, similar to a credit card.
Remember the “piggyback” rides you gave when your child was a toddler. Do some stretching, they are back! Adding your older child as an authorized user on your credit card can help the minor “piggyback” on the good credit behavior of the original card member. However, be warned, the authorized user approach works both ways. All users’ credit history can be enhanced or hurt. This is only recommended if you can be confident you will make regular and on-time payments on the card. You don’t even have to supply your minor access to the credit card, but entrusting them with the ability to purchase certain items (like gasoline or school supplies), can help promote independence and responsibility.
Another way to help your child maintain unscathed credit, is by monitoring their credit report annually for fraud and identity theft. Children 13 years and older can check their credit the same way as an adult, by visiting ANNUALCREDITREPORT.COM annually and requesting a FREE credit report. Unfortunately, children are an easy target of credit fraud and identity theft, since they typically have an unused credit until later in adulthood. Keeping your child’s personal information safe and reviewing their credit is invaluable.
Having a good credit score is almost as essential as having a valid ID. When your child faces the ultimate requirement of having a credit score, help ensure their credit worthiness by early education, utilizing your great credit history, and reviewing their credit report annually.
Published in the Victoria Advocate
Beth M. Koonce CFP® is a Lead Advisor for KMH Wealth Management, LLC.