This One Strategy Will Jumpstart Your Kid’s Credit Score
Many people are aware of the advantages of having good credit. It can save you money and make it easier when it comes time to make big purchases like homes and cars.
At the same time, it can be difficult to establish credit and keep a good credit score. This is especially true when someone is just starting out as a young adult.
If you’re wanting to help give your kid a jumpstart on their finances, here’s a look at one strategy and some factors to consider before you take action when it comes to their credit score.
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Use Your Account
You may be able to help your child build their credit score by linking them to your own credit card account. You can add them as an authorized user and then take the time to review statements and purchases on a regular basis. This will help them understand how credit accounts and credit cards work.
Be sure that you and your kid understand this is not a joint account. You are the primary account holder responsible for all the transactions. That means if your kid misuses the card, you’re the one at fault.
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Consider the Benefits
Before we talk about the benefits for your kid, let’s look at one for yourself. According to the Points Guy, you may earn extra perks such as bonus points or statement credits for adding an authorized user.
By adding your kid to your account, you can help them build their credit history and score. According to CNBC, “The goal is to have a child build credit from a relatively early age by piggybacking off their parent’s — i.e., the primary account holder’s — good credit.”
Some other benefits include financial education opportunities for your kid. You can show them how to responsibly pay off debts and manage credit cards.
All of this will likely have long-term benefits for your kid. Good credit scores can help them qualify for loans and lines of credit, get lower interest rates and pass application checks from landlords and prospective employers.
Think About Certain Factors
Let’s look at some factors to keep in mind. The first would be that you should have good credit in order to take this action and help your kid.
You also may want to only do this strategy with older kids. It might work best if your kid is in their later teenage years or early 20s.
You should also consider adding rules and boundaries. You could let your kid know that you’re going to do this for one, two or three years. You can set spending limits for them as an authorized user. In fact, you don’t even need to give them a card at all. The credit benefits can still translate.
If you want to do more to help your kid when it comes to credit, you might consider getting them a personal finance book or enrolling them in a course for younger people. The lessons they learn about money and credit could stay with them for a lifetime.
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This article originally appeared on GOBankingRates.com: This One Strategy Will Jumpstart Your Kid’s Credit Score
