Your child will be taught many things in school, some good, some not so much. With a solid education, they should be able to face life as an adult, right? Well…while they certainly will be learning things that they can apply in life, they certainly won’t learn it all. Take finances, for instance.

I know they will learn some information on finances, but not sure how much at this point. When I was in high school, we had accounting classes. But, it did very little in teaching me responsibility. And currently, my child is only 6 years old, so I’m not sure what to expect when he gets into high school.

I was told that in the next school year, my son will be learning about currency, which was a little surprising to me. So, maybe there is hope that the importance of financial stability might be a subject in his later years. However, we can’t count on that. So, I am going to share some information on establishing credit, and why that is so vital to our children’s life.

They Might Need Your Help

Establishing credit is so important in our adult life, and the earlier your child realizes this, the better. The misconception by many younger adults is that bad credit is the reason why people are turned down for loans. While it’s true that bad credit can ruin your chances, so does not having any credit at all.

A bank is not going to be eager to lend money to someone who has no history. I know. It’s tough to build credit, when credit is necessary to get a loan…to build credit. The epitome of a catch-22.

However, it’s not impossible. You might have to co-sign once or twice in order for their credit to take hold. The sooner you do this, the better, in my opinion. It’s best to help them out with something minor, before they are turned down for a larger and more necessary item such as a car.

But, let’s address some basic methods of establishing credit, which may…or may not, require your signature.

How to Establish Credit

There are a few ways your child can build up their credit, such as banking accounts, a credit card, or a small loan. However, it’s vital to have some discussions with them about how to use these accounts properly.

Here are 3 ideas, along with tips for each:

1. Bank Account

Once they open an account, they need to keep track of all monies that go in, as well as go out. This includes deposits, withdrawals, checks written, and bank fees. They can use a traditional paper ledger or one online.

Perhaps they will take it more seriously if they have personalized checks, an indication that the account is theirs. If they have interests in something specific, they could probably find checks to showcase that interest. Show them where to order checks online, and let them take a look. I remember when I first had checks with dogs on them, and how those felt more like my checks, rather than one from my parents account.

Also, make sure they know what happens with an account is overdrawn, and that it can have a domino effect when it comes to charges. It’s not only damaging to their credit, but expensive.

2. A Credit Card

Notice I said “A” credit card. By helping them get one credit card, with a very low limit, you won’t have to worry about it getting way out of control. Teach them how to use the card, make payments on time, and stretch it out at least 6 months to build credit.

Teach them how to set up reminders each month for when payments are due. I use Yahoo’s online calendar with my email account. Setting up a reminder to be sent just a couple days before the due date is very easy. Of course, the more you do this for them, the more they will rely on that, rather than learning to do it.

3. Take out a Small Loan

Taking out a small loan to buy a computer would be a great way to build credit, while getting something they will use often. The store or bank might require you to co-sign, but it will still build up their credit.

Just like the credit card, they will need to make each payment on time, and pay it off in full. Reminders can be created for this as well.

Keeping Credit in Good Standing

In order to keep their credit in good standing, they need to pay attention to payments and going over limits. Unfortunately, some cards will allow you go over the limit, for a penalty and will affect the credit score.

To make a lasting impression, make sure they are aware of how bad credit can have a negative impact in many areas of their life such as getting a loan, renting an apartment, insurance rates, interest rates, and even getting a job.

You might even be surprised to know that 70% of the larger companies check applicants credit scores. If your child’s credit score is low, they could miss out on a great job.

The sooner your child gets a firm understanding on credit and how it can affect their life, the sooner they will take better care of it.

About the Author

Kathy Barber has been working on a series of articles on teaching teens about credit and finances. Thinking back to her first checking account (with her favorite dog checks) was an inspiration to this series. As a freelance writer, she writes on various topics including online businesses, medical, and home brewing. Residing in Michigan, Kathy loves spending time with her family. When she is not working, she enjoys cooking, photography, and music.