We've discussed in previous posts how to start teaching your child financial responsibility through a bank account, but what about their credit score? Credit scores have such a huge impact on a child's financial future, and you can help them establish and build their credit from early on in preparation for future student loans, car loans, or other future financial endeavors!
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Add your child as an authorized user on your credit card
While taking out a credit card usually has an age minimum, you can still add your minor as an authorized user on your card. You don't need to give them a physical card until you feel they are ready for the responsibility, but you are still helping them build credit simply by having their name as a user. Once they are older, you can get them a physical card and begin to educate them on healthy credit spending habits. Many parents choose to give their teens a credit card as an "emergency" card or for gas and groceries. Others ask their teen to contribute a certain amount toward the card each month to help them learn about paying bills and paying down debt.
Co-Sign on your Child's Credit Cards or Loans
Once your child is old enough or they are preparing to take out their first loan for college or a new car, you can co-sign on their loan to help them continue to build credit. This may be a requirement especially if they are a full-time college student. Unfortunately, financial literacy is not a widespread lesson taught in schools, so it is up to parents to teach healthy ways of handling money. A good credit score that was established young will help set your child up for future loans. In fact, 15% of your FICO score depends on the length of your credit history, so the earlier the better! It's not doubt that mistakes can happen, too, such as missing a payment, so a longer credit history can help overcome those obstacles.
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