For some parents, it’s hard to imagine that their cute and playful children will someday become adults and needs to do all the things that grown-ups have to do, like buying a house, applying for loans, etc.
However, this process is inevitable. Our love birds will eventually leave us and start a new life. As responsible parents, it’s our job to prepare them for that day. Besides all the financial basics you’ve taught them so far, there is yet another concept they need to learn. Then they’ll be fully prepared for independent adult life, and that’s building “credit history.”. Once your children turn 18, they’ll be allowed to use different types of credits, such as credit cards, BNPL, student loans, etc. That’s why they need to learn about building credit history before that time in order to kick-start their adult life.
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Why Is it Vital to Help Kids Build a Good Credit History?
You may think it’s too early to enter them into the overwhelming credit world. However, studies have shown that the earlier children learn about credit history, the chances are higher for them to have a more prosperous financial future. Having a good credit history can help them get accepted for finance easier than others or have a lower interest rate on credit.
How Old Should our Children Be to Start Building Credit History?
Your children can establish credit scores and start to build credit history when they turn 18. But, as we mentioned earlier, that doesn’t mean waiting until that day comes, but the wise action is to prepare your under-18s for it. Before we get to the practical methods, let’s clear up a myth about children’s credit history. Some people believe that if they add their kids to their credit cards, it’ll let kids build a credit history. Although adding them can have lots of benefits, it’s not true. You should know only the payments that the account holder makes will be documented on the credit history report.
Based on this fact, it’s not possible for children to start to build credit history even one day younger than 18! But this shouldn’t stop you from teaching them about it.
What Do Children Need to Learn before Building Credit History?
Your children need to spend a few prerequisite courses in order to be prepared to build a top-notch credit history. Make sure your under-18s know how to manage their money. If you are just starting to teach them money management, you’ll find this article helpful.
Another thing your kids need to have enough knowledge about is saving habits and the vitality of tracking their spending.
If everything goes according to plan, your children will reach the age of 18 having significant financial literacy. That’s when you need to talk about the credit reports and what items banks mention in them.
They also need to know that improving their money-saving skill will help them rely less on credit. Throughout these credit lessons, they’ll learn what exactly borrowing is and what’s considered healthy in applying for loans and borrowing, and what’s not.
Which Methods Help your Kids in Building Credit History?
There are some practical ways you can help your kids build a satisfying credit history.
Let Your Kids Handle their Money with a Prepaid card
Allowing our kids to manage their money like adults with a credit card can be one of the main steps toward building a good credit history in the future. This idea may scare you a little as you are not sure whether your kids are ready for a card or not. In that case, read this article to make sure. Providing your kids with prepaid cards is a great practice for the time they are eligible for credit cards and ready to struggle with credit history and score.
The first thing the prepaid cards can do is to help your kids get acquainted with the concepts like budgeting and saving. However, it’s essential to keep track of your spending to make sure you are on the right path. Applications like YounGo Money can be a great help in this process. The only thing you need to do is to open a bank account at any high-street bank and install YounGo Money. Not even one tiny transaction will slip out of your hands!
Talk about the vitality of good credit habits
The only way to build a superb credit history is to have good credit habits. Parents should make the potential penalties of not repaying on time clear for their kids. In addition, you should teach your kids to know their limits. They should know that credit cards are not to purchase things they can’t afford to pay back.
You can make the learning process easier by telling them stories about your colleagues or friends who couldn’t pay their credit card debts.
Electoral Register
You can register your children on the electoral roll when they turn 16.
As you know, the electoral roll is a document that local authorities hold to determine if you are eligible to vote in elections or not. The reason we mentioned it here is to show the vital role it plays in the credit world. In the scarcity of a national database, the electoral roll can be used as an index for credit reports. Many financial sources believe that the electoral roll has a huge impact on credit rating. Registering your children can be a kick-start for them to build a good credit history.
To Wrap Up
As an adult, it’s unnecessary to remind you how important credit scores and history are. They actually impact any huge decision you want to make in your life like applying for a loan, mortgages, etc.
That’s why it’s more than vital to make sure kids know all the fundamentals of credit and how to build a good credit history in the future.
Don’t be scared to start this conversation with them, even if they are 10 or 11 years old.
