Helping Your Child Establish Good Credit

As a parent, your greatest desire is to see your child grow into a productive, happy and well-adjusted adult. Creating a secure financial future is an important piece of this puzzle. Key to this is emphasizing the value of a good credit rating and its role in financial stability. The digital age means easy access to negative credit ratings that potentially can prevent someone from purchasing a car, renting an apartment or buying a home and even getting a job.

Discuss these basic principles and give your child a better chance of handling their credit histories with care.

Go to the bank. Online payment services may be changing the way we store and exchange money, but banks are still an important link in the chain. Establishing and using a checking account and savings account are good practices to begin from an early age. Sure, your child may never need to write a check, but it helps to understand the concept. And while the debit card is currently the preferred method of payment, an account must be attached to it for it to function.

Encourage your kids to get a job. What’s a bank account without the paycheck to go in it? Early work experiences teach valuable lessons in responsibility and the value of a dollar. They also give your child the chance to get in the habit of saving and making decisions about how to spend hard-earned dough. Work history should be documented from day one to start building that essential career tool, the résumé. A consistent work history shows potential creditors a pattern of earning that may lead to a healthier credit score.

Pay your bills. Help your child understand the monthly obligations that go along with living a comfortable life. For example, you might demystify the privilege of a cell phone or cable television by sharing the monthly tab for these luxuries. That bank account also comes in handy when it’s time to pay, and automated payment systems probably are more intuitive to digitally minded kids than previous generations.

Use credit cards with caution. Explain the good and bad of credit cards. Yes, they make it much easier for certain online purchases or reservations with car rental agencies, hotels and airlines. However, they can also be temptations in your wallet with high annual fees and exorbitant interest rates. And while using a credit card responsibly can have a positive effect on credit history, late credit card payments or being overextended with too many accounts or high balances can quickly throw credit ratings into a tailspin.

Take advantage of free annual credit reports. Introduce your child to the three major national credit agencies that gather and report credit history. Anyone can request free report each year. This is a good idea not only for monitoring credit rating but also for intercepting identify theft, which can show up as a false credit card or loan activity on a credit report.

Rob Davis lives in University Place with his wife Lorri and their youngest son, Parker. He is a Financial Advisor and CERTIFIED FINANCIAL PLANNER practitioner™ with Ameriprise Financial Services, Inc. in Tacoma, Washington. Rob specializes in fee-based financial planning and asset management strategies and has been in practice for 37 years. He is licensed/registered to do business with U.S. residents only in the states of Washington, Idaho, Arizona and California. You may contact Rob at ameripriseadvisors.com/robert.g.davis.

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