How To Teach Your Children About Credit Scores

Apr 10

Help your children learn about credit scores and responsible spending for financial success when they’re adults. It’s never too late to teach your children about healthy credit scores and how to achieve them. Here are a few tips on how to help your children understand credit scores.

Why credit scores are important for children to know now

Learning what it takes to achieve financial stability is an essential skill for children to learn at any age. It’s never too early or too late to teach your children about the value of money and credit, and how to use them to create opportunities for financial security and wealth.

Credit scores in particular are a very useful and critical financial responsibility to reach financial goals such as purchasing a home, leasing a car, securing a business loan, and much more. Your children should not only be aware of how powerful credit scores are, but what exactly they are and how to use them.

If you’re already practicing healthy financial habits, involve your children and prepare them with the tips found in this article to establish and maintain great credit scores.

What to teach your children about credit scores

Your children, whether they are little ones or teenagers, may have questions about what makes a credit score so important to achieving financial success.

Here’s how you can break down each component of credit scores to help your children understand what credit scores are and how to manage them.

The credit basics

Before your children can understand what a credit score is, explain to them how it’s a part of their overall credit.

Here are the credit basics to go over with your kids:

Credit cards: First, tell your children the difference between credit and debit cards, and how (and when) to use credit cards. Remember to explain how credit cards aren’t free money, yet borrowed money they are responsible for paying back later.
Credit limit and spending: Then, explain how their credit card comes with a spending limit they can’t surpass, and how to spend money responsibly by using 30% or less of their available credit. Help them understand the consequences of debt and how to manage their credit with care.
Credit report: Last, demonstrate how each purchase they make with their credit card is being graded and tracked on their credit report, which is the foundation of their credit score.

What makes up their credit score

Credit scores can range from high to low depending on their credit report composed of their spending habits, debt, and payment history. Low credit scores start at 300, average credit scores start at 600, and good to excellent credit scores go up to 750.

Let your children know what a poor and healthy credit score looks like, and how a healthy credit score can qualify them for benefits such as an increased credit limit or lower interest rates.

How to use a credit card for a healthy credit score

Using a credit card might feel daunting to your child or teen if you decide to help them open a credit account. Help them review their credit account terms, such as credit balances, due dates, fees, and credit limits to keep their credit score in good-standing.

Sources:

Capital One. (2022, May 12). 6 Lessons to Teach Credit to Your Kids and Teens. https://www.capitalone.com/learn-grow/money-management/teaching-kids-about-credit/