Today, I’m excited to share a very informative guest blog article to help you teach your teen about building good credit. In this article Amy gives you some great tips on how to teach your child to be responsible for their own credit! Well done Amy, and thank-you for sharing this with us.
Cheers…Amanda…Excited Life Enthusiast!
Why High Schoolers Can’t Manage their credit?
Credit, like money, is a resource that could go either way. Uncontrolled, it could become a liability. Used properly, it is an asset. In recent times, however, it has gone beyond being a mere resource. It is now a status symbol, and even teens, college and high school students alike, are begging for credit cards from mom and dad. The risk with issuing a credit card to a high school student, however, is that high schoolers are barely responsible enough to manage credit properly. This is why, when high school kids clamor to get a credit card, their parents should teach them wise credit management as well.
Before we dive into credit management for teens, we’d like to discuss another issue that besets teenagers and credit: credit card fraud and identity theft committed against people who are not even of legal age.
The moment an identity thief gets ahold of another person’s SSN, he can then open lines of credit, using that SSN. With these new lines of credit, financial transactions can be made. By the time a child turns 18 and gets a credit check in order to secure student loans, he and his parents may come into a rude awakening that his credit history has already been compromised.
Two things could be at work in compromising the individual’s credit: Identity theft or identity fraud.
Identity fraud only entails the theft of one’s SSN, and a whole new identity could be built using it. Identity theft involves stealing the victim’s SSN, his full name, as well as his birthdate, and using these to open new lines of credit, and even file major loans.
Identity fraud could be committed by just about anyone who can find a victim’s SSN. Identity theft requires the criminal’s access to the victim’s data.
It is chilling to note that even a child’s parents could be guilty of identity theft. Since they have the closest and easiest access to the victim’s data, these unscrupulous parents find it easier to rationalize committing identity theft against their own children.
This is why, when some individuals turn 18 and get a credit check, they’re in for a rude awakening. No thanks to credit card fraud or identity theft.
If all other conditions are normal, like no identity theft has been committed on a child and his credit history is clean when he turns 18, then “regular” guidance on credit management is still in order.
Teach your child the importance of good credit by showing him the advantages of being in good credit standing:
- It’s easier to get approved for new lines of credit, especially when you need it the most.
- It’s easier to get approved for a new AUTO LOAN, especially when your teen kid wants a car for his or her 18th birthday.
- It would be easier to rent a new apartment with good credit.
- It would be easier to apply for another student loan if needed.
- In case you and your family are financially fluid and could afford a home loan for your high school or college-age child, then this is another benefit of being in good credit: easy approval for a home mortgage loan.
Given these advantages of being in good credit standing, there is no doubt that you’ve actually interested your college-age offspring into being able to manage credit properly. So, what are some practical ways to be able to promote good credit management? Here are some things to tell your high school or college-age teen:
- “Your card is for EMERGENCIES only.” A teenage child with no means of income has no business abusing his credit card. Unless he takes a part-time job and pays his bills himself, he shouldn’t be using his cards for impractical expenses he cannot afford. A credit card is issued to a teen to help them when they ran out of cash and their parents cannot send them money immediately. Make this clear to them.
- “If you spend on things you don’t need, you’re paying for it.” College is already a life event that breaks the bank. Sit down with your teenager and explain to them the costs that you’ll incur over his years in college. If your teen is still in high school, illustrate to him the costs involved in sending him to school. This way, he will realize the true value of money.
- “Live within your means.” This does not mean buying anything that still fits within their credit limit. This means only spending the amount on their cards that they can pay off in full every time their credit card bills are due.
- “If you can’t afford to pay for it, you can’t afford to charge it.” Having a card can sometimes tempt a user to buy things they really want but cannot afford. Even if it’s on “Zero Installment,” if your teen cannot afford to pay the monthly dues for it, let them know that they cannot afford it on their cards.
- “If you max out your credit, we’re cutting it off.” And mean it, too. Even though this sounds like one of those threats that parents don’t really follow through, the moment your teenage son or daughter maxes out on his credit cards, have them all cut off. Then let him pay off all the balances. This way, he will learn the consequences of not being able to manage credit properly.
The importance of good credit cannot be stressed enough. A teenager has to learn good credit management as soon as he gets a card. This way, he learns the value of money, the value of credit, and how to take care of these properly.
Amy is an active blogger who is fond of sharing interesting finance related articles to encourage people to manage and protect their finances.
I know you want the best financial education for your child or you wouldn’t be reading this article, so click here to choose 1 of 7 free gifts to help your child learn about money now as my gift to you for taking the time to read this important article.
Cheers…Amanda…Excited Life Enthusiast! ;o)