Helping Your Child Establish a Good Credit Rating

By Katie Braun, Financial Advisor, Ameriprise Financial

Brookfield, Wis. - 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 has created easy access to negative credit ratings that can potentially prevent someone from purchasing a car, renting an apartment or buying a home, and even getting a job.

Discussing these basic principles with your child increases the chances that they will handle 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 checking and savings accounts are good practices to begin early. Sure, your child may never need to write a check, but it helps to understand the concept. And while a 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 into 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. A 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 can lead to a healthier credit score.

Pay your bills. Help your child understand the monthly obligations that come 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 to make many online purchases, or reservations with car rental agencies, hotels and airlines. However, they can also be temptations in your wallet, ones 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 a free report each year. This is a good idea not only for monitoring one’s credit rating, but also for intercepting identify theft, which can show up as false credit card and loan activity on a credit report.

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Katie Braun, a Pewaukee resident, is a Financial Advisor with Ameriprise Financial Services, Inc. in Brookfield, Wis. She specializes in fee-based financial planning and asset management strategies and has been in practice for 16 years. To contact her, please call (262) 785-1010, visit her office at 16650 W. Bluemound Road, Suite 800, or go to http://www.ameripriseadvisors.com/katie.braun/.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.

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