While it’s never too early to start, we recommend looking for opportunities to build credit for your children as they start off their college career.
Nov. 16, 2019 Article

Helping Your Teenager Establish Credit

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“I wish I knew then what I know now.” That’s a statement many of us make in life. So, the question is, how do we help our kids with things they should know now that will also help them in the future?

We at Mariner Wealth Advisors often field questions from clients about how they can help their children establish credit. In our opinion, having a solid credit profile is crucial in our adult life. In the past, credit was mostly a concern if you were going to purchase something like a car or house. Today, your credit history can affect these things along with your ability to rent a home, buy/lease a mobile device, set up utilities, get a job, etc.

While it’s never too early to start, we recommend looking for opportunities to build credit for your children as they start off their college career.

The first step is to ensure your child understands the basics of managing his or her finances. When your child obtained a first job, he or she more than likely opened a savings account. If your child has not yet started a checking account, now is a great time.

A checking account will help your child understand the importance of tracking spending habits. Because using a debit card can result in deductions happening at the same time, your child will need to learn how to track purchases against the balance of the account. While many banks offer online options for tracking the account, you may want to consider using a traditional check register. This helps your child control their money because writing down each purchase illustrates the impact spending has on available funds.

Once your child has mastered the checking account and tracking expenses, it’s important to discuss with him or her the importance of credit. Specifically, make sure your child understands what it means to follow good money management and live within his or her means. To begin establishing credit, consider these options:

  1. Open a credit card from a credit union or bank you have a relationship with in your child’s name. Make sure your child understands that this is money he/she needs to pay back and it is important to pay off the balance in a timely manner each month.
  2. Secured credit card: With this type of card, your child provides a deposit to the corresponding bank. The credit limit generally matches the deposit, which can be very helpful. The Credit Bureaus report these cards in the same manner as standard cards.
  3. Co-signed card: You are the primary account holder, but all communication will go out to your child. The risk is that if your child doesn’t pay, it will have an effect on both the child’s and your credit. We recommend proceeding with caution on this option.
  4. Authorized user: This is a bit different than co-signing because you are still in control of the account and receive all statements. You also see all charges on the account, which may help address accountability.
  5. Student Loans: If your child is relying upon student loans through college, know that as they start repaying those loans, it will affect their credit profile.

Helping your kids establish credit can help establish a strong financial foundation when combined with solid financial management. The habits they build now will last a lifetime – make sure they’re good habits.

 

Source: Four ways to help kids establish credit

The information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. There is no guarantee that any claims made will come to pass.

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