Teach Your Teen About Credit: It’s Not Too Soon
The Internet is full of information on credit, but there’s a lot of misinformation that your teen could come across while doing independent research. It’s important that your teen has a firm grasp on credit before going off to college or into the workforce. It’s imperative they know the impacts credit could have on them in the future. As you know, your teen’s credit score can have a major impact on his or her life in the future. It can affect your teen’s ability to obtain a loan, mortgage, or even impact his or her future employment. So, how do you explain credit to your teen? This post will provide you with 7 credit tips for teens.
1. Make Sure Your Teen Understands the Importance of Their Credit Score
From report cards to SAT scores to sports stats, teens are well aware of how numbers represent accomplishments and responsibilities. It’s important to explain credit in a way your teen can understand. Make sure they understand that their credit score has a major impact on his or her ability to get necessities in life such as a house and a car. Putting real-life examples behind credit can keep your teen’s interest, and make them feel like credit really does apply to them.
2. Stress The Importance of Paying On Time, Every Time
It’s important your teen understands that credit cards aren’t free money. Just because they are not paying the money up front, does not mean they don’t have to pay it back at a later date. Emphasize the importance of making payments each month, and explain to them the negative effect late payments can have on their credit score, and how this could impact their future.
3. Explain Minimum Payments
Make sure your teen understands that making only the minimum payment on a credit card will result in interest charges. Provide your teen with an example. For instance, would he or she rather pay $20 for a shirt now or $25 for it later? This will help them understand that making only the minimum payment each month makes their purchases much more expensive in the end.
4. Teach Them Healthy Spending Habits
One of the fastest ways to get into credit card debt is to spend more money than you have. Help your teen understand the importance of not over spending, and teach them how to differentiate need from want.
5. Show How Responsible Credit Card Use Helps Build Credit
Explain to your teen how lenders use credit score to approve or decline loan requests. He or she will understand that a higher score correlates with a higher chance of being approved for a loan. Make sure they understand that credit takes a while to build, and emphasize the importance of practicing smart spending now.
6. Explain Safe Internet Usage
In our digital world, online shopping is an everyday activity for many people. Educate your teen on where they should and should not use their credit card online. For instance, advise your teen to never enter his or her credit card information on a checkout page that is not secure. He or she will be able to tell if the site is secure by looking for https:// instead of http://. In addition, secure sites will have a little padlock icon before the URL. Also, make sure your teen knows not to enter his or her credit card information while using public Wi-Fi. This would include teen hot spots like the mall, coffee shop, school cafeteria, etc.
7. Demonstrate that Responsible Debt isn’t Bad
Help your teen understand that credit and debt can help people make investments that they could not afford otherwise, such as a car, house, home repair, or even college education. Help you teen understand that responsible debt not necessarily a bad thing.
Other Resources for Credit Tips for Teens
- Pocket Cents by Mycreditunion.gov.
- Money Smart by the FDIC
- Consumer.gov
- Launch CU’s blog
