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By Jaime Ervin, contributor
When your teenager ventures out into the real world, there will be many financial and lifestyle options that will be made available—or unavailable—based in part on their credit score. The quicker we can get teens thinking about credit and understanding how to use it, the better off they’ll be as they strike out on their own.
While your teen may not be ready to have their own American Express card with an unlimited credit just yet, there are steps that you can take now that will help them boost their credit scores.
What’s in a Score?
Knowing what makes up a credit score is important. Encourage your teen to make the connection between financial behavior and consequences by explaining to them the components that factor into their credit score: length of history, credit usage and payment history, for example.
Many adults don’t understand everything that goes into their credit score, so helping your teenager to understand even the basics will go a long way.
Set Credit Goals
The concept of a “credit score” may be somewhat ambiguous to a teenager—after all, it can seem like just a random number, even to adults. Help them make a connection to what big-ticket item that boosting their credit score will help them with—which for most teens is a car.
Making their goal tangible will help them stay on track toward a great credit score and getting a good deal on their vehicle financing. Show them concrete examples of how a good credit score can mean better payment terms and lower interest on their car loan.
Use Credit for the Right Reasons
It should be made very clear to teens that they should use their credit to make life more convenient, not to spend more money than they otherwise would. If you wouldn’t spend it in cash, don’t put it on the credit card. Because so much of their score is based on usage and payment history, it’s important to not overextend.
On Time, Every Time
One thing that will help teens get their credit score up and keep it up is making all payments on time. Starting good payment habits early can set teens up to be responsible credit users as adults.
Keeping even one account from going into delinquency or collection can save them a ton of points on their score, and thousands of dollars in finance charges and increased interest rates on loans.
Lead by Example
It is so much easier to get ahold of your own credit score now than it ever has been. Use the availability of your own information as a teaching tool with your teen. Pull your credit and look at it with your teen. If your credit is superb, you can give them advice about how it is saved your family money to be in that position.
If your credit looks a little rough, use it as an opportunity to talk with your teen about how to stay out of financial trouble. Have a frank and honest discussion with them either way, and let them know that building (and fixing) your credit is a marathon—not a sprint.
Above all else, keep it light and interesting for your teen. The last thing you want is for them to tune out on such an important part of their financial life. Help them get excited and follow up with monitoring by checking their report with them a couple of times a year so they can see how things are progressing. Nothing motivates like looking at the scoreboard!
Jaime Ervin is a mom, attorney, and certified teacher living and blogging in Western New York. Raising an eight-year-old fairy princess and a sassy teenager who can’t wait to be 30 is her life’s greatest challenge and joy. You can find her blogging at www.parentpalace.com.