How to Help Your Teen Build Credit
It's never too early to start thinking about ways to build credit. Here are a few steps you can take to get your teen started on the right foot.
From helping them understand small chores to life’s everyday challenges like paying bills, the financial knowledge you share can help your children get the upper hand when it comes to building credit. When they're older, this could make it easier for them to qualify for a credit card or rent an apartment on their own. Continue reading for some suggestions on how you can assist your adolescent in learning about and beginning their journey to build credit.
Teach your teens the basics
Start with the “whys” of building credit and give your teen a breakdown of why it’s important to build good credit history. Discussion topics can include:
- The possible advantages of having a good credit score for anything from obtaining a phone plan to receiving credit card approval.
- The significance of responsible credit usage.
- The distinctions between debit and credit cards.
- The advantages of making a budget.
- The value of protecting and maintaining the privacy of personal information.
Start with a credit report check
Check your teen's credit reports to be sure they are starting from scratch. There are still methods for your teen to have a credit record even if they are unable to apply for credit on their own, such as through error or identity theft. And when it comes time for your teen to open their own accounts, that could cause problems.
To check your child's credit and report any inaccuracies, get in touch with Equifax, Experian, and TransUnion, the three major credit agencies. And after they turn 14, make it a habit and have your teen examine their own information.
Hughes makes checking your credit score easy. With Hughes’ new online tool, CreditSmart, members get access to their credit reports and scores via Digital Banking. CreditSmart’s reporting feature provides the same robust information you would find on your credit report while helping you to understand the key factors that impact your score and overall financial health.
Open their own checking and savings account
Help your teen manage their own finances by getting them started with building short-term savings in a savings account and keeping their spending money in a checking account. Your teens may learn management skills that they can use when using a credit card by using and managing both accounts.
You can open a bank account for your teen whenever you determine that they are ready. You can participate in maintaining and managing the account as a joint owner. However, you can ensure that kids can exercise some control and gain practice on their own.
Hughes offers both Youth Checking and Savings accounts. The Hughes Youth Checking comes equipped with a free Visa Debit Card, free unlimited bill pay, no monthly fee, no minimum balance, overdraft protection and more. Get started with a Youth Savings account and get competitive savings rates to help your teen with their savings goals.
Make your teen an authorized user
By designating your kid as an authorized user on your credit cards, you may be able to help them establish credit before they turn 18. That is, if the card issuer submits information to the credit bureaus and those agencies include it to credit reports. An authorized user's credit or credit score might not be impacted at all if information doesn't show up in a credit report.
When used responsibly, your kid may be able to develop and improve their credit history while also benefiting you. But it’s important to remember that negative behaviors like late payments could be detrimental to both of you.
Look into opening a secured credit card
There are certain possibilities you may both take into account if you believe your kid is ready to use credit. Typically, in order to open a credit card in their own name, children must be at least 18 years old. Additionally, if they are under 21, they must demonstrate their ability to independently make the account's minimum payments. If they are unable to, they may require a co-applicant, guarantor, or joint applicant who is at least 21 years old and has the means to make the account's minimum payments.
An excellent alternative can be a secured credit card. This allows your teens to use their own savings as collateral, instead of lenders taking a risk and giving out credit to someone who hasn’t established any credit history yet.
Show them the ropes
While you may not see it, teenagers can pick up a lot from how you handle your own money and credit. You may want to emphasize the reasons why you're thinking about utilizing one credit card over another. Or demonstrate to your kid how a credit card bill appears and how the payment affects the economics of your family.
You can also talk about the mistakes you or your friends made when you were teenagers, as well as what you learnt from them. They might still make errors on their own despite it. But maybe they won't make the same mistakes twice, and it might make them feel more at ease asking for assistance from you.
Talk about why good credit is important
When teenagers are unable to open their own accounts, credit can appear confusing to them. However, if you can emphasize the value of credit to your teen's specific aspirations, it might be helpful. Maybe your adolescent wants to buy a new car. You can do this by describing how having good credit allows you to get a car loan.
Building and establishing credit is one thing, but make sure to explain to your kid that it's simply the first step, is important. Responsible use of credit cards and other financial accounts is necessary to maintain excellent credit. It is a process that takes time and is continuing. However, starting financial lessons young could help your teen accomplish a lot of future goals.