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8 Ways to Help Your Teen Build Credit

April 25, 2016

By: Stacy Yu

Building good credit habits beginning at young age gives children the solid foundation and the fiscal advantage needed for a prosperous future as adults.  Although individuals under the age of 18 cannot build credit on their own, there are ways of jumpstarting the process while still minors. 

Here are 8 ways parents can help children get on the road to building good credit. 

1. Open a Savings and Checking Account in the Child's Name
Opening a savings account, and later checking account for children is a fantastic way to introduce them to the concepts of saving and financial responsibility. By getting a child used to the concept of not spending beyond what's in their bank account, children will be more likely to live within their means as adults.

2. Be a Good Role Model
Parents and guardians are the most important role model a child can have. By practicing good spending habits yourself and introducing more sophisticated payment methods, like a credit card, while children still live at home, you can provide a safe and healthy environment for the child to practice responsible fiscal habits.

3. Start with a Debit Card or Secured Credit Card
If there is a concern that your teen will overspend using a credit card, parents can introduce the concept of card transactions using either a debit card or secured credit card. These card options are pre-funded and offer a no overdraft option, therefore eliminating the risk of accumulating unwanted credit card debt.

4. Low Limit Card with a Low Interest Rate and Low or No Annual Fee
Low limit credit cards are a great option for the more fiscally responsible teen. Many Student Credit Cards have this option available. Like the Debit or Secured Credit card, the Low Limit Card will help teens practice using the credit card without the worry of accruing a huge debt. If your teen has a Low Limit Cards with a low interest rate and happens to miss a payment, this can be a great lesson about interest, and how it can impact their total level of debt.

5. Admit Your Mistakes
Allowing your child to make his or her own mistakes can be extremely valuable.  However, when it comes to finances, learning from the mistakes of others can be even better.  Admit your own financial mistakes and keep an open dialogue about money with your child. Not only will they be able to benefit from the wisdom of your previous experience, they will also be more comfortable going to you if something goes wrong.

6. Put a Utility Account in Their Name
Once your teen starts driving, think about getting them a gas card. Or if they're away from home and have a cell phone account, put the account in their name. By putting a specific expense or utility in their name, you are giving your child the opportunity to build their credit history and show proof of bill paying reliability.

7. Use your Home Address on Credit Card Applications
If your child is in college, use your home address on the credit card application. In many colleges, people may change addresses every year. Credit agencies like to see stability. By using your home address on record, your child can enjoy the nomadic college lifestyle, while also showing consistency.

8. Pull their Credit Report
Once your teen has had some time to build some credit, pull their report.  Sit down and review the reports with them. Show them how agencies track their credit and loans, and what all of the numbers mean. By doing so, you will be teaching them a valuable lesson that will hopefully give them (and you) financial independence as adults.

MAFCU offers Cash Critter Club accounts for kids up to 12 years old, as well as Student Plus Checking  accounts for kids ages 14-20. This program helps teenagers learn about saving, help them build credit, and learn about financial services.

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