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Kids and Credit Ratings: Education and Revelation

by pop tug

Your kids are still in their tweens. Why is it so important to talk to them about their credit ratings now? Speaking on a personal level, I have to be honest. I had a bad credit rating before I stepped out of my parent’s house. My parents never had the credit talk with me. They believed in the pay cash or don’t buy it philosophy. I had book clubs, record clubs and all the usual teen expenditures. Unfortunately, I didn’t have the money to pay for them. At the age of sixteen, I had already fallen into the buy now, pay later trap set by retailers. It took me several years to get back on track.

Things are different now. Retailers aren’t so quick to forgive teenage credit blunders. I came of age in the late 70s. This is the millennium. Good credit plays a huge role in our lives. Without it, we can’t buy (or rent) a place to live. We can’t buy a car. In some instances, bad credit can even impact our chances of getting a job.

Talk to your kids about credit early. Appeal to their wants. Ask them what kind of car they want when they get older. Explain to them what it will take to meet that goal. Find out the type of lifestyle they’d like to lead. Show them how building good credit now can help them get there. Use yourself as a good or bad example, whatever the case may be.

Do encourage your child to buy small things on credit. Go ahead. Let them join that book club or subscribe to that magazine they like. Just make sure you talk about the importance of paying their bill on time. Small honored purchases can be a foundation for their good credit. Help kids to develop a healthy mindset about bill paying.

Kids shouldn’t buy anything unless they have the money. In some ways, my parents were right. Before kids charge something, they should be able to prove the money will be there to pay for it. It’s actually smart for kids to charge things occasionally. Yes, even when the money is right there in their pocket. Teach them to set that money aside. Teach them to pay the item off before interest is levied. It’s a smart way to build credit without risk.

Should kids have bank accounts and credit cards? Absolutely. Should you give them full reign over them? Absolutely not. Kids should not have credit or debit cards in their possession until they have demonstrated their intention to use them wisely. Childhood is a time for learning. It’s a time for making mistakes, yes. Just not at the expense of ruining their credit rating. Give your kids an education about building and maintaining their credit while they’re still young. Teach them to balance their checking accounts monthly. Until they’ve demonstrated self control, keep their cards in your possession. You might save them from a lifetime of regret.

More from Jaipi:

Lessons Kids Learn from Your Tax Return

Raising Kids Who Think Outside the Box

Five Smart Habits of Successful Kids

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