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There are many financial lessons you need to teach your children — the value of a dollar, the importance of saving — but one that’s often left by the wayside is the existence of their credit reports.
A credit report is an important part of your financial footprint and it has a huge effect on your ability to access credit. This is especially true if you aren’t a responsible borrower when you’re young. But how young is too young to teach your kids about credit?
As a parent, you want your children to avoid money mistakes and handle their finances responsibly. By teaching them about how important and delicate credit is, you’re preparing them for adulthood — don’t forget that they’ll learn a whole lot by watching how you manage your money.
Depending on how young your child is, it may be a little too early to bring out your credit report and explain how it works. However, it’s never too early to explain the importance of properly managing money.
If they receive pocket cash, you can use this allowance to demonstrate how an income can be saved. If they ask to borrow money, you have the opportunity to explain how interest works. Teaching these money lessons early will pay off later.
You have several windows to show how important credit reports are during your kids’ teenage years.
You can make your teen an authorized user on your account to let them get first hand experience using a credit card. When giving them access to a credit card as an authorized user, they have the same spending ability as the account holder. This will teach them how to manage a credit card, plus, the on time payments you make will be reflected on their credit history.
Keep in mind that you’re responsible for any debt on your account even if it was your kid who did the spending.
This is the age that your children will start applying for their own credit cards and personal loans. Once they’re young adults, it’s important they have an understanding of how different financial products work and what effect it’ll have on their credit reports.
What you should know about credit reports
No matter what age your kids are, they should have a good understanding of each of the following.
Your credit report affects your ability to access finance. If you have any negative listings, such as defaults, late payments or multiple credit inquiries, you may not be approved for credit or you’ll be approved for products with higher interest rates and fees.
This is why it’s important to make your children aware of the importance of keeping a clean credit report. Here are some points to touch on when teaching your kids about credit reports:
Teaching your children about credit will empower them to make smart decisions and use their credit wisely. By being in the know that mistakes can negatively impact their creditworthiness, they’ll be less likely to rely on their credit card and spend frivolously.
Doling out these lessons about credit throughout childhood will give your kids the tools to build a healthy credit report with a strong credit score.
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