Helping your kids establish a positive credit history as teens can make them become financially independent earlier because it can help raise their credit score -- a key factor when they apply for their first car loan, apartment, credit card and mortgage.
Helping your teens establish credit
We talked to Erik Larson, president and founder of leading consumer resource NextAdvisor.com about how to help your kids establish credit and use credit cards wisely.
Start with a joint account
"Establishing your child as a joint account holder or authorized user on your credit cards can help them build a positive credit history," explains Larson. "The only catch is that you need to pay the credit card bills on time -- otherwise you could be hurting their credit history.
"Another positive is teaching your child how to use credit responsibly before they get their first credit card of their own. Many young adults who get their first credit card on their own establish a negative credit history that takes years or decades to put behind them. By teaching your child how to responsibly use credit in an environment where you can make sure they do just that can be a very valuable lesson."
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Monitor your teen closely
Tip: Sit down with you teen on a monthly basis to talk about their credit.
If you are helping your teen establish credit, it's important to closely monitor his/her spending. "If you don't monitor your child's credit card spending, you could be reinforcing bad habits," says Larson. "The card must be paid on time or you might actually be hurting your child's credit history."
Sit down with you teen on a monthly basis to talk about their credit. Look over the credit card bill together. Talk about expenditures, spending habits and paying off the bill. By doing this monthly, you can stop any real trouble before it starts.
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Best credit card options
You have several options for getting your child a credit or debit card. Larson outlines these top choices:
"Even though understanding personal finance is one of the most important life skills for people to learn, it is virtually not taught at all in our educational system," says Larson. "So it's up to parents to teach their children this critical knowledge. Giving your child a solid foundation on the subject is truly something that will positively impact them for a lifetime."
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