Helping Your Child Establish Credit

When I graduated from high school, my parents gave me a sewing machine as my graduation gift.   The gift extended beyond the device, and my mother used this opportunity to help me establish credit and a good credit report. Sewing was a skill my mother taught me, and she knew that I enjoyed it. A few days after graduation, Mom and I went to the store and picked out a cabinet for the machine, which I would pay for myself. I completed a credit card application and put 20% down toward the cabinet purchase. A few days later, I received a Singer credit card in the mail. When the bill arrived, Mom had me write a check to pay the balance in full. So, at 18, I had a credit card with a record of promptly paying the debt in full.

My parents set a good example to use credit sparingly and to maintain an excellent credit record. In those days, gasoline companies and department stores issued most credit cards. They were used only in the store that issued the card. General-purpose credit cards, such as Visa and Discover, were rare in those days. I do not recall ever using the Singer credit card, but having it allowed me to apply for and receive a Sears credit card while in college. I used that card sparingly and promptly paid the balance in full upon receiving each bill. My mom invested in a gift that she knew would benefit my future.

When my sons began driving, I co-signed for a credit card for each of them. I wanted to ensure that they never got into a situation such as needing gas and not having any money. They had limits on how they could use the card. I could check the card online at any time, and my husband and I  expected them to pay their balances in full each month. If the bill was due and had not been paid, I transferred money from their savings account to pay the bill. We discussed their spending habits regularly. With a bit of guidance, they maintained excellent credit during college. When our first son to marry wanted to purchase a house, the mortgage lender was impressed that a twenty-two-year-old had a credit score in the high 700s.

A wonderful gift any parent can give their child is to help them establish good credit. Teaching the principles of financial integrity and maintaining good credit is critical to helping your children transition into adulthood.

Here are some guidelines to help parents get started on training their children to establish credit:

  1. Model responsible use of credit.
  2. Have family discussions on your budget regarding discretionary spending.
  3. Don’t assume your child has learned what they need to know about credit in school. Talk to your child about establishing and maintaining credit.
  4. Help your child to develop self-control. Early in their lives, teach them that you cannot afford to buy everything they want. Discuss with them the need to make choices and prioritize needs over wants.
  5. Demonstrate self-control by saving for larger, discretionary purchases. Share information with your child on how your savings are accumulating and how soon you will be able to make your purchase.
  6. Help your child develop a savings plan when they are young. Putting aside even a small amount each week or month can result in a tidy sum by the time they graduate high school. This money can be applied to college or their first car.
  7. Co-sign for a credit card for your child and discuss their spending habits each time the credit card bill comes. Discussions should be positive and affirm good decision-making. A good time to do this is when they start driving and going places without you.

Children do not instinctively know how to establish credit and maintain a good credit record. They must be taught, and it is your responsibility as their parent to instill good credit decision-making skills. Good credit will pay great dividends in your child’s future. “Train up a child in the way he should go, and when he is old, he will not depart from it.”  Proverbs 22:6

For more tips to help you manage your financial resources, please see my other blogs in the Finance tab. My book, Honoring God with Your Money, is full of guidelines to help you use money in a way that builds true wealth. Click here to sign up for my quarterly newsletter:

Minimizing the Costs of Credit Card Balances

Americans have a love affair with credit cards. They make life easier while also making it easier to overspend. Studies reveal that a purchaser will spend an average of 20% more on an item when using a credit card than when paying with cash.

Person using a laptop computer and holding a credit card.  Title is "Minimizing the Costs of Credit Card Balances."

Credit card usage peaked in the fourth quarter of 2008, as the nation entered a severe recession, with balances reaching a then-high of $866 billion. Credit card balances fell significantly over the next 5 years. As the economy recovered, however, the use of credit cards and credit card balances began to rise. Today, credit card balances are approaching the $1 trillion level. The average consumer carries a credit card balance of $7,279 ( Fifty-three percent of credit cards being actively used are not paid off in full each month. The average interest rate of these balances is 20.92%, and the average interest rate being offered to new borrowers is 23.65%. 

The good news is that most Americans make regular credit card payments, and only 2.25% of credit card balances are delinquent by 30 days or more.

The minimum credit card payment is typically about 2% of the balance. On the average balance of $7,279, the minimum payment would be $86. At that payment and an interest rate of 20.92%, it would take a borrower 28 years and 3 months to pay off the debt. The total interest paid would be $27,776. In this scenario, the $7,279 in debt would cost the borrower $35,055.

When a consumer (that’s you) begins to take an active role in their financial future, they can minimize the interest on credit card balances. Remember, interest is handing part of your hard-earned paycheck to someone loaning you money. If you are not paying off your credit card each month, you need to determine why you carry a balance. 

The steps below can help you make advances on getting a handle on your credit card debt: 

  1. Always pay at least the minimum balance on time.
  2. Set up automatic payments to ensure that payments are always made on time.
  3. Pay more than the minimum balance whenever possible.
  4. Consider the actual cost of debt before making large purchases on credit cards.
  5. If your balances are on multiple credit cards, prioritize paying off the card with the highest interest rate first.
  6. Live below your means so that you will have some money each month to put toward your credit card balances.
  7. Create a budget to live within your means. (Refer to my past posts on budgeting) 

To learn more about how to manage your money and pay off debt, please click the Finances categories tab to find many blogs on money management, budgeting, and stewardship. My book Honoring God with Your Money is a great tool for financial money management.

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