PERSONAL FINANCE: Put your child on a path to building a solid credit score [Column]

One of our main responsibilities as parents is to teach our children lessons that will serve them well in life long after they’ve reached the age of adulthood. Like establishing healthy eating and exercise habits, helping them learn to take care of their finances is one of the most valuable pieces of wisdom we can pass on to our kids. When they are young, you may want to start with the basics of budgeting and saving, which are core to building financial discipline. As they become older, it’s also essential that children are taught how to build and maintain a good credit score.

Credit is by nature complex, but the building blocks to a solid credit score are actually quite simple. Here is a primer to help your kids get started on the right foot.

Make your child an authorized user on one of your credit cards

This can be done prior to the time your child can obtain their own card, giving them the ability to use the card for their own purchases. You will still be responsible for paying off credit card bills, but your child’s credit score may benefit from being associated with your strong credit record. It can also serve as an initial test of how your child handles credit. Set expectations that they are responsible for repaying you for any charges they accumulate.

Have them build their own credit when possible

The time will come when your children will qualify for a credit card. Again, it’s important to stress the importance of paying bills on time each month. Ideally, they will pay off the entire balance monthly to avoid high interest expenses. They also need to make timely payments on any other debt such as student loans, store credit cards, and even on expenses like utility payments. Note: debit card use does not contribute to building a credit score.

Encourage them to exercise caution in how credit is used

Achieving a good credit score is a bit of a balancing act for younger people. They need to obtain and use credit in order to accumulate a history that will be reflected in their score. Yet they want to avoid overdoing it. Make sure your child knows not to take risks by using credit to pay for large expenses that could require a long payoff period or taking on more than one or two credit cards at a time. Managing credit is a new experience for most people just entering adulthood. By following these steps, you have an opportunity to set your children on the right track.

Bronwyn L. Martin is a Financial Advisor and Chartered Financial Consultant with Martin’s Financial Consulting Group, a financial wealth advisory practice of Ameriprise Financial Services LLC. in Kennett Square and Havre de Grace, Md. She specializes in fee-based financial planning and asset management strategies and has been in practice for more than 22 years. To contact her: www.ameripriseadvisors.com/bronwyn.x.martin.

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