Suze Orman TwitterSuze Orman FacebookSuze Orman YouTubeSuze Orman LinkedIn
View Blog & News List

Teach your Children Well-Part 3: Give Your Kid’s Credit

July 21, 2016 at 12:00 AM

Young adults are making a big mistake with their finances. Survey after survey reports that most millennials do not have a credit card. I am wholeheartedly on board with preferring a debit card. But everyone needs to also have a credit card and use it responsibly.

One of the most important tools you can have in your financial tool kit is a strong FICO credit score. You can be the most responsible debit-card user on the planet and it will do nothing to help you build a credit score. As absurd as it is—and yes, I do think it is absurd-one of the best ways to build a credit score is to use a credit card. The three major credit bureaus all factor in your credit card payment track record-do you pay on time?-into their FICO credit scores. And how much of your available credit that you use in any given month is another important factor in determining a FICO score.

Of course, without some solid guidance, a young adult can make a mess of his or her financial life by running up way too much credit card debt. So my dear parents, your job before a child moves out is to make sure they have aced smart credit card habits:

Add a young teen to your card. A child can be added to an existing credit card account as an authorized user. Consider this the training wheels step. Have your child use the card once in a while for an agreed-upon-expense. And then make it a ritual to sit down and go over the credit card statement every month, spending some time explaining the trap of just paying the minimum balance due.

When a child is added as an authorized user, they will begin to build a credit profile based on your account. That can be a great help if you in fact have a high FICO score. But keep in mind that a new version of FICO scores differentiates between someone having their own account and someone being an authorized user. Authorized usage gets less weight in the FICO scoring system. This new scoring system isn’t yet widely used, but it’s something to keep in mind. Sooner than later you probably want to consider graduating your child to their own credit card.

Co-sign a Regular Credit Card, or a Secured Card. Minors who don’t have ongoing income can only get a credit card if an adult co-signs. A no-fee credit card with a very low credit limit can be a smart way to help a high schooler build a credit profile based on their own record (rather than as an authorized user on one of your cards.) But this requires care as well. The potential danger is that a safe initial credit limit of say $1,000 or so is suddenly increased by the card issuer (or your overzealous child asks for a higher limit) and some hefty charges are made. That can be an expensive lesson all around, as you are ultimately responsible for paying off all bills.

Another option is to have your child apply for a secured credit card. Secured cards require a deposit, and the user can only charge up to the amount of the security deposit. That’s a surefire way to stay out of over-spending trouble. Most secured cards report a user’s spending and payment habits to the credit bureaus, so they will indeed help a child build a solid credit file that will eventually translate into a good credit score. But it is smart to double check that any secured card you child applies for will indeed be reporting to a credit bureau. You can shop online for secured credit card deals. Many issuers charge an annual fee of $25 or so, but there are also deals with no annual fee. Shop around.

Teach the Golden Rule of Credit Card Management. Even if you carry an unpaid credit card balance from month to month, please don’t let your child think that is in fact the “best” practice. Teach your child that the smartest way to build a solid credit profile and retain financial freedom is to only make charges that they can always pay off in full each month. Developing this good habit from the get-go could be one of the most valuable financial lessons a parent can teach a child.

Tag Cloud

Financial Awareness8 month safety networkaholicautomatic withdraw to savings waive home inspection bidearn more on savingsincrease emergency savingslow mileage discountHoliday ShoppingUniversity of Floridasavingsdon't ignore open enrollmentpay credit debt ASAPterm insuranceno sneaking in feesdo not pay allowance for good behaviorForbes Top 10Willcommunity bankWarner Bros Television GroupMost Influential Celebrities Listdebit cardholiday spendingcollege graduatestore credit cardscreate new truthRetirement Savingsoverspend on giftsConventional loan PMIfiduciaryAARP Social security calculatorAmericans don't use all paid vacation timeloan no longer than 36monthsLTCi ASAPyours, mine & oursburn outis it true? write new goalCOLAonly refinance if it paysSchool of Social Workstandard rateInflation Benefitfocus on new truth raising mortgage rates summer job match income Fixed Rate Mortgagebest interest of investorhome buying season15 year mortgageraising interest ratesVeterinary SchoolpowerfulNewtowngift grandchild IRA contributionCredit Card Interest Ratehealthy retirement weightcredit reportcompare monthly expensesresponsibleopen enrollment review family save at least $100 monthly3 step financial road mapAuto Savings eight month living expense paying for collegeprotect your familysocial security not going brokeHoliday Seasonschool home related tax break bonus alternative FICO scoremoney-aware childSandy Hook Promiseterm life insuranceno tax on withdrawlsJose Rodriguezthree year car loanbuy homeexercise reguarlyCommencementFHA loan feesfinancial concernjanuary billsbe kind to yourselfrepay student loansinterest on student loanschildren under 18gift not loan2015 record year car salesswitch to roth 401(k)money vowsPBS Special3% debt transferred be good exampleFICO credit score credit card mortgagelive below your meansidentity theftretirement accountsbudgetFinancial Clifffinancial independencepremiumBankruptcy20 to 25 times annual incomeChanging Lives6 month waiting periodleave a legacystudent loan repaymentStudent Debtbuy home you can affordmake saving a pleasureMarlo Thomasdangerous retirement planmarriage inequalitygift up to 14,000pay high rate off firstdon't derail retirement savingsrefunddoctor no longer in networkFinancial Power of Attorneyritual schedulemental healthmonthly benefit require chore in exchange for allowanceincreased auto insurance premiumitemized deductionFundsmax employer matched 401(k) contributionget health insuranceearn allowancehealthy retirement blood pressuresocial security never insolventnear historic lowsCiti Simplicity Card CD'sFree Debt Eliminatorpay off debthealthy gumsBeauty8 month emergency fundPersonal Financeno private loanpercentage men widowed 75-84letter to suzeWashingtonEric Dodge is it necessaryno negativitylower interest ratebad decisionssmall changes derailed plansuitableengaged in financesMoneydoctors in networkunder 18 financial giftsavings pleasureBaby Boomers2015 financial roadmaporigination feespresident Obamalong term care2016 adjust withholdingFederal Stafford loanpurely financial standpointloved ones dependent on incomespeak new goalget credit cardinterest capitalizationlife insurance name trust as beneficiarymortgage disclosureAmy Lacyetdear suzenot enough life insuranceanticipated salaryinsurance mistakeGiftPhyllis Shelton expert long-term careHigh Credit Scoreone credit cardLong Term Care Insurance federal student loan deferment television hostcollege studentdental discount planhealthy youhome buying mistakesPrime Rate Increasecar leasingraise insurance deductibleRoth 401(k)referrals automatic paymentHDHP's are good for youdon't cover cosmetic dentistrycharges on credit cardtake actionhighest possible benefitno late fee Financial Gift CliffPrime Rate Rise 201550 over 50Influentialsvalue moneyEasy Life Insurance special saving accounthigh credit score discountreduce interest rateteens and moneyplandon't blow tax refundjuggle multiple financial goalshome insuranceuniversal college accessAccuQuote.comprofessional advisorenjoy saving IRA contribution gifted moneypercentage of women widowed 75-84tax ID theftaffordabilitySuze Orman's Money Warsat worst still pay 75% benefit19 years cash flow problemno splurge be true to yourselfconsider roth 401(k)FICO at least 720max benefit coveredchildren's bookno interestmonthly dental insurance premiumbalance transfer loan big picture HDHP focus on needszero rate transfer dealsrequired disclosureannual cost of living adjustmentapproved medical 100% tax-freeshort term goal worst financial mistakeage appropriate goalsForeclosurecommissionsreal estate marketovercome financial fearsRichtaxesgrandparent IRA contribution US Tax Codecredit carddeath benefit needs for familydepreciating asset credit managementbetter loan dealshigher monthly paymentSelectQuote.comhousing marketgrandchild summer job IRA contributionUniversity of IllinoisPost-Divorcelet them have 50% controlbetter termsFRAbest loan deal social securitysuccessARM CautionCivil RightsEmployer Matched Contributionroth iraHeartNew York Lifepay down student loan debtpositivewives should be involved in retirementStudent Loanage appropriate choreteach importance of helping otherscommitunexpected expenseverify wellness screening and programstitle insuranceDeath BenefitRevocable Living Trust401Knon conventional routeknow before you owecnbc alarm clockhealthy teethHigh FICO Score = Better Rateadult childrenLegal Guardianlong-term care premiumsstretch out haircut appointmentsMoney Marketborrowing plan don't buy wantsco-sign Interestmanage student loansdon't defer interest paymentsFederal Reserve8 Rulesloan necessityCombo Insurance Productsconfidentsidelinedheartachecouple financesgay marriage ban end Florida allowancedental savings planstaycationHDHP/HSAInvest for savings growthprescription tieremployer offered life insurance4 Must Have Documents not gender specific maintain standard of livinglong-term care traditional vs roth 401(k)overspend on nights outcommunity collegetoo expensive schoollower premiuminsuranceLong Term Care shoppinghigh deductible health care planGay Rightshome buying budgetshorter payback period740 credit scoreiffy incomecut monthly cable billcut monthly cellular billmobile appMust Have DocumentsAshley SpringerrolloverARMYoung Adult 20% down paymentWall StreetEmergency Savingsadvice for college graduatesrising home prices20% down payment avoid feesbad retirement planninghigh down paymentstudent loan repayment planpeace of mindget the most out of social security comparison shoppingeliminate credit card debtdeath benefit 20 to 25 times annual incomeDurable Power of Attorney for Health Caremax employee matchBanklong term goalFederal PLUS loanpush yourself to save more for retirementavoid burn outunsubsidized Stafford loan15-year refinance dealMinor Children 10 year repayment plan Influential Celebrityrent vs buylow-cost index mutual fundsecure creditfinancial argumentsdebt freeno life insurance financially irresponsible40% toward financial goalno private loansSuze Orman ScholarshipThe Suze Orman Showmeet monthly raise your deductibleprotect and provide for minor child borrow each year, capitalization is going to pile up become member closing disclosurefraudulent returnsecured cardpoint cost offset by savingswomen live longerrefinanceStudent Debt CrisisFinancial Awareness Video Festivalcostly insurance mistakeallowance taskultimate compounding giftOverspendingdon't use allowance as bribelow down paymentbuying a carMass Mutualteach your child good money habitshome loan credit score below 740 file taxes quicklypublic service loan forgiveness program20 year level term face your financial feardebtHolidaywould you decline a bonusETF'sSuze is my biggest mentorfile asapcredit utilization ratelousy investmentphysical health401(k) Contributions30 year mortgage compare provider pricingStaffords this year have a fixed 6.8% interest rateSuze Ormanverify retirement plan with HR or plan sponsor2017 TaxesLifestyleSandy Hook Elementary SchoolCredit Card Rate IncreaseHDHP's are not badlearn good financial choicesgraduationpay down car loanlife insurancepaid vacationFinancial Educatorkeep a scheduleteensExhibitionsame sex marriage band end Floridais it kind?low credit scoreSuze Orman spouse Kathy TravisRetirement Incomeincrease retirement contribution ratereduce monthly paymentone annual feeoverspend on dining outhome budget after tax costLTC shoppinghome ownershipNew american Dream Communication Skills quick closingget over life insurance phobiaCory Bookerdream schoolsetup automatic savings withdrawkid borrow firstlowest cost fund optionreal estate mistakesPay Off Debt Before Retirementreduce withholdinghigh premiumsSave Us MoneyOne Wallet At A TimeCollege of Veterinary Medicineno fee transferbreakdown projected monthly housing costmultiple lendersGoodbyelower rateCPI-WFinancial2016 adjust estimated taxcredit unionstandard deduction Money-Savingnegotiate points with bank or sellerloan is giftSuze changed my lifeCNBCidentity fraudStock Investmentsraise deductiblesHDHP'semotional stakeshigher insurance deductibleno retirement funds for down paymentForbeshealthy aging student loan repayment estimatorsave public service career student loan repayment back-to-school budgetlower mortgage interestlower overall drug costprotect loved ones switch to spouse coveragebest interest ratesFinal GoodbyeUrbana-ChampaignFinancial SystemAlarm Clockdon't do five year car loanemergency fund savingsfinancial goal phrasecar loandon't charge a pennyclosing feesSelfishfour steps to retirement savings pay more than minimumSuze approvedsocial workFinancial Adviceno waiting periodis it necessary?car buying mistakeswomen longer life spansame-sex marriageretirment savingsprotect dependent insurance yearly reviewdental insurance only offered while employed adjust allocations pay interest while in schoolaccelerate dental workBill and PennyFiscal Responsibilityadd teen10% donate to charitynew carLTCclosing costs 2% of loanaffordable premiumincrease retirement savingsstudent loan debtstay positiveback door Roth IRAFinancial Solutions For YouretirementCredit scoreconfident of solutionfinancial aidGracebig results costly legal automate student loan paymentspreexisting condition not coveredretain separate credit cardsdangerous money seasonbetter loan ratesshop online guaranteed level term policyprovider of financial supportLoveSwap Older Annuities or Life Insurance contribution MotherHow To Build Creditdon't extend mortgage mortgage interest tax deductionmortgage brokerAARPfinancial fearsGay Couplesreplace permanent life insurance with termmortgageschedule vacation!00% tuition paidSpendingalways use all paid time offmarriage financial responsibilityRevocable TrustLong Term Care premiumsAdequate Auto and Home InsuranceFederal Funds RateMortgage Credit Availability IndexSatisfyingstrained relationshipbill paying prioritiesdo you need life insuranceGiftscalculate dependents annual income needscontribute household expenses Telepicturesvalentines day3 bucket approachbuy down HSA tax savingsincentives for health care wellness screeningfull retirement ageemployer funding HSAretirement plancost of capitalization calculatorpay 100% cashwomen long term carespring summer women outlive menstudenthigh FICO score3 savings buckets buying car 2016tax refund fraudemergency fund save moneyVital Documentspermanent life insurancedon't spend 20% equityresponsible with moneyinitial tax break financing car escrowproperty taxno apologykids schedule paymentsignore 6 month grace period Teachcan you afford itFICO Scorepaid in full

View Blog & News List
People First. Then Money. Then Things.
Connect with me on Facebook Connect with me on YouTube Connect with me on Twitter
© 2017 Suze Orman Media Inc. All rights reserved.
 |  Search  |  Sitemap  |  Privacy  |  Terms
Sign Up For E-mail Offers
Open Panel
Close Panel