UA Matters: How to Help Your Children Build Credit
While it is important to establish a good credit rating early in life, there are other factors that need consideration first.
Is your child mature enough to manage money without your constant assistance? Is your child willing to take on the responsibilities of money manager, or are you attempting to coerce him into accepting the role?
Don’t force the issue until he is ready. If he has not learned how to manage his allowance, for instance, helping him establish credit is not your first priority.
But, when the time is right, there are several ways you can help your child build credit, and The University of Alabama’s Jan Brakefield offers a few suggestions on how to do just that.
- He needs to get a job. All work is worthy work. Earning an income is a powerful motivator to learning how to save and spend that income. When he needs to borrow money later (student loans, auto, etc.) lenders will view his work record and ethic favorably.
- Take him to a bank to establish account(s) in his own name, but don’t monopolize the conversation. Sit in the lobby instead of beside him at the new accounts desk. Let him run the show.
- Once he has handled his bank accounts well, open a “secured” credit card using his savings account as collateral. Watch for fees related to secured cards; some are much higher than others. Ask about the details when he visits the bank to open the checking/savings account above.
- When he has convinced you (and himself) that he is ready to make payments on a credit account, apply at local retailers for a low-limit credit card. Do not co-sign the account with him. Shop around until he finds a retailer who will use his work experience and good financial habits on their own merits for approving an account, and not your guarantee.
Brakefield is an assistant professor in UA’s College of Human Environmental Sciences’ department of consumer sciences.
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