Start Building Credit for Your Children

 

The danger with children and plastic is that without proper management they might dig a hole for themselves in no time.  Parents are all too aware of this.  What many might not know is that length of credit history accounts for fifteen percent of your total credit score.  That percentage means that a person who has just entered the world of credit cannot have a perfect credit score.  The sooner you start the better.

 

As a parent, building a child's credit is helpful, so long as you are on top of things.  A high balance and late payments are credit killers.  A teenager is not going to understand interest rates at first.   He or she is not going to grasp why late payments can hurt your financial flexibility later on in life.  These can be hard lessons to learn, especially when they're learned as young adults.

 

Safeguards are vital.  It would be wise to start a child off on a card that has lower limit.  A limit of $500 should suffice.  Limits are common sense.  Not only will your children be forced to keep track of what they spend, but you can also guarantee that the monthly statement won't shock you.  In addition to the headaches you are sparing yourself, limits help ensure that you can cover their balance.  What's the point of having a child build credit history if the parent isn't able to help maintain a good score?  Even if your teenager earns his or her own money and is making the payments, it is your responsibility to supervise.  After all, you are the parent and your years of experience mean you should take the lead.  It would also be smart to look at cards with low interest rates.

 

Building credit is important, but the advantage of credit is to develop good habits.  While you might be running the show, it's important that you educate your child on the whole process.  Show him or her the monthly statement.  Point out the interest rates.  A good idea might be to have them cut the check, assuming they have a bank account.  Provide stipulations for the card.  Many parents give their child an "emergency" credit card.  Others who fear their child is prone to impulse spending might start them off with a debit card, which draws funds from his or her bank account automatically.

 

Starting early is more about education than credit history.  Helping your child to develop good spending habits will send them into adulthood better prepared for financial responsibility.   One day your children will want to buy a car or house and have their credit score scrutinized.  If you've instilled good habits in them, their scores will work in their favor.