Consumer Advice

Tips on Showing Your Child How to Use Credit Wisely

A View from the Beach

In the past, credit card companies rushed to college campuses (even some high schools) to sign up students who had no visible means of ever repaying the credit card. Since they had no income to even make the minimum payments, it’s ruined their credit for many years to come.

Ideally, you might want to start the process when your child reaches age 16.

Even if you consider co-signing a credit card for your child, there are a couple of steps you can take to make sure they understand how to use credit cards wisely.

Step 1 – Open up a checking account and ask for a debit card to be included with the account. Review how much is in the account, how much they have to spend, and talk with them about overdraft fees if they take out more money than is in the account. If they manage that responsibly for 6 months (to a year), go to the next step.

Step 2 – Add your child as an “authorized user” to YOUR credit card account. He or she will get a credit card with their name on it and they will start to establish their own credit history. Set a limit. Determine who will pay for each charge, and how. Do that for 6 months or more, and if they don’t comply, remove them from the card and have a good heart-to-heart talk about spending, budgeting and credit scores.

Step 3 – If they have demonstrated that they can handle a credit card responsibly, you might want to co-sign on the credit card with them. Make them accountable. Ask them to share the charges and repayment terms with you. Create a User Name and Password so you can also watch what’s happening online. Show them how to do the same.

Remember, as a co-signer you are on the hook, too, and if they fail to make payments, it reflects on your credit also.

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