One of the keys to boosting one’s financial situation is having a high credit score.
You’ve probably heard the notion that children observe and often repeat the actions of their parents. I believe this statement is true, especially in regards to money. It’s simple: if you develop good financial habits, and in turn teach those behaviors to your children early on, their chances of achieving monetary success down the road could greatly increase.
Following are practical habits—that with your own guidance and consistency—could help your children achieve their financial goals and get a head start on establishing a healthy credit score.
- Schedule regular discussions
Communication with your children about their finances is a vital component in helping them develop healthy habits. By scheduling a once-a-month meeting to discuss the details of their budgets, you can encourage them to stay on track while also spending quality time together.
- Analyze credit scores on a regular basis
Try to go over scores with your children annually and look for any errors or inaccuracies. Visit annualcreditreport.com to get your free credit report. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.
- Obtain a secure credit card and use it wisely
Using a credit card is one of the most obvious ways for your children to start building up their credit history. This can be one of your points of discussion at your monthly meetings. Stress the importance of paying off credit card balances each month, however. The ideal debt-to-credit ratio is at 30%. Though it may be tempting for them to spend close to the credit limit, let them know it could severely affect their credit score.
- Consolidate credit card debt into one payment
If you have a child that has accumulated an outstanding balance on multiple credit cards, encourage him or her to transfer them all to one low-interest card. Watch for offers that will allow your child to transfer balances for a low interest rate. Having just one card with an outstanding balance will reflect much better on one’s credit score than debts on several cards.
- Automate payments
The easiest way to boost one’s credit score is to avoid missing payments, yet this is a common mistake for those that lack an automated schedule. Teach your child how setting up an automated payment schedule is not only good for their credit score (payment history comprises 35% of it!), but it will also relieve stress and give them a peace of mind each month.
Bottom line: As I stated in the first point, communication with your children is a key to their financial success. If you are already following the above points, your children will be even more inspired to follow in your financial footsteps.
Read this related blog: Financial Literacy for Children: What You Should Know.