A major problem when kids go off to college is that they have no understanding about credit or how it works. It is very common for parents to open a checking account and provide them with a credit card. While they think they are helping their kids with these new means of spending power, they are setting both them and their children up for failure. Parents need to understand that a child that is ready for college academically in no way means that they understand how to take care of their finances...especially if they have never been taught. Therefore, it is critical that you teach your children about managing their finances and all there is to know about credit. The info below will also help them build their credit as a minor.

Credit Cards
Prior to granting your child the privilege of a credit card, it is important that you not only teach them about using a credit card wisely but that there guidelines with its use.

Create strong rules for them when using the card. If you indicate that the card is only to be used for school purposes and emergencies, make sure they understand that if they abuse the card, they will lose the card and even be responsible for the debt they incur. And make sure they understand what YOUR definition of an emergency is since their classification of an emergency is likely very different than yours.

A good idea may be to have your child utilize a secured credit card first. A secured credit card does not have a revolving credit line associated with it. And therefore only allows spending of the amount that has been placed in the account. A secured credit card removes any chance of charging money they do not have.

When you determine that your child is ready for a standard unsecured credit card, make sure they understand credit card balances. Specifically that it is important that they pay their bill in full every month to avoid having to pay interest. It is equally important that they pay on time every month to avoid penalties and increased interest rates and even worse, a damaged credit score!

You can research and apply for student credit cards over @ Nerd Wallet. They have great side-by-side comparisons of all the major student cards.

Checking Accounts
Do not enroll in overdraft protection when creating your child's first checking account. It is important that your child understands and practices balancing of their checking account. And do not pay for any overdraft fees they incur as a result of not balancing their account. They need to learn from their mistakes and you will only be enabling by picking them up when they are down.

Rescuing Your Child
You can do your best at teaching your child to be responsible with their finances. However, it is probable that your child is still going to get themselves in over their head in debt and/or bounce checks. Some people don't agree with tough love and you know your child best. But, rescuing your child may not help them since there really is no lesson being learned when mommy and daddy bail them out. On the other hand, your child may so adversely impact their credit by the time they choose to start being financially responsible. When to step in and take control is going to be a careful decision for parents to make. The bottom line is, try and associate a lesson whenever you get involved and create a consequence between you and them. Meaning, pay their debt now so their credit does not get damaged but set up a payment schedule for them to pay you back an amount every week until the debt is gone.

Checking Credit Reports
After your child begins to use credit, it is important that they enroll in a credit monitoring service and obtain a copy of their credit report on a regular basis to ensure accuracy. They can get educated about credit reports here.

Related Reading:
Six Steps to Re-establishing Your Credit
Mortgages to Rebuild Credit
Getting Credit with a Secured Credit Card
Building Credit When You Have No Credit
Personal Loans for People with Bad Credit
Credit for Those Under 21
Teaching Kids About Money - There are money topics you should not discuss with kids. Learn more.


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