How to Help Your Teen Get a Good Credit ScoreApr 18, 2018
If you have a teenager at home, you might already be getting the occasional request to borrow your credit card – or even to apply for a card of their own. Before you add your teen to your credit card account, ask yourself a few questions. Does your teen understand how to use credit? Do they know what a credit score is? Do they know why their credit history is important?
There are a few ways you can help your teen get a head start on learning these concepts. It all begins with developing good habits.
Practice good financial habits first
Everyone experiences some buyer’s remorse or makes the mistake of overspending at some point. Before your teen gets a credit card or loan of their own, prepare them for the financial ups and downs they’ll probably encounter.
Work on helping them establish some good financial habits, like budgeting, prioritizing purchases, and saving money throughout their teen years. They should also have a way of earning money so that the decision about spending it is real, and affects them personally.
Some parents give their teen a pre-paid debit or credit card, or act as the lender themselves, with an agreed-upon interest rate and payments directly to them from their teen.
This is a good way to let your son or daughter make financial choices independently while knowing that there is no outstanding debt to be paid. A pre-paid credit card can give them more experience with consumer debt and being cashless, and you can review their purchases and costs together.
Many financial bloggers out there are very honest about their own mistakes and successes with credit and debt. Read about them with your teen as part of your financial literacy plan.
How to help your teen with credit
In Ontario, the legal age to sign a contract is 18, but as a legal guardian or parent, you’re entitled to co-sign a loan, credit card, or other contract (think cell phone) with them.
Doing so can help them build a credit history and give them the responsibility to manage their own finances, like remembering to budget for debt payments, and remembering to make payments on time.
Making payments on time and in full is a key factor in building good credit. If your child misses a payment, that missed payment is included in their credit history and could lower their credit score.
If you’ve opted for a joint credit card with your teen, or added them as a authorized user on your credit card, be sure you monitor their credit behaviour. Any late or missed payment will affect your credit, too.
Want to learn more about how to help your teen build a good credit score and a positive credit history? Click on our podcast below!