UAEX Money
Help Build Your Child's Credit Score
One in three young adults (ages 18-34) report that they are struggling with inability
to manage
debt, according to a National Endowment for Financial Education poll. Debt can be
a tool or a
trap. Consumers with the highest credit scores qualify for the best interest rates
on home and
car loans. Lower interest rates can save thousands of dollars over the life of a loan.
Landlords,
employers, and insurance agents often use credit scores to assess the risk of doing
business
with someone. Set your children up for financial success by teaching them to manage
credit
wisely.
Teach your child how to check a credit report. There are two purposes for checking your child’s
credit report. First, you can teach your child how to check and read a credit report.
Second,
you can monitor for identity theft and fraud. There are three main credit reporting
bureaus:
Equifax, Experian, and TransUnion. Individuals are entitled to a free report from
each bureau
each year. Check one report every four months to monitor throughout the year. Be sure
to use
the correct website address at www.annualcreditreport.com. Look for incorrect information.
If
you find errors or suspicious activity, be sure to contact the credit bureau.
Start a credit history. Individuals build a credit score by using credit wisely. Add your child as an
authorized user or co-sign an account with your young adult child. An authorized user
may
make purchases using your account. You are responsible for paying the debt. Your good
management of the account will reflect positively on building your child’s credit
score.
However, if you have late payments and keep the card maxed out, this will not only
hurt your
score but can also damage your child’s credit score. If your child is 18 or older,
you can co-sign
a credit card with your child. You and your child are equally responsible for paying
the bill. If
your child overspends or makes late payments, this can reflect poorly on your credit
too.
Whether authorizing or co-signing, it’s important to set ground rules. Make sure your
child
knows what purchases are acceptable to charge on the account. Set usage limits. Co-signed
cards can have a low limit to keep your child from overspending. A low limit keeps
total debt to
a manageable amount in case you end up having to pay all of the charges.
Be a good role model. Children learn from their parents. They are likely to repeat behaviors
they observe in their parents. Talk to your kids about good financial management practices.
Live within your income. Limit your use of credit. Make more than the minimum payment
or
pay off balances monthly. Pay all bills on time.
Discover the latest personal finance recommendations at www.uaex.uada.edu.
Laura Hendrix, Ph.D.
Assistant Professor – Family and Consumer Economics
Pursuant to 7 CFR § 15.3, the University of Arkansas System Division of Agriculture
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