Managing Credit – Credit Tips
It sounds like a joke, but it’s not: the younger a person gets his or her first credit card, the better that person is at managing consumer debt. New research indicates that those who get their first card at 19 is about 12% less likely to be 90 days or more behind on payments; someone who starts with credit at 21 will manage it better than someone who gets a first card at 23.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 made it tougher for young people to get credit. People under 21 generally need a co-signer or income to be approved. And, it is now illegal to market credit cards on college campuses.
But, the new research suggests that this approach could be backwards. Getting credit early may be the key to developing lifelong healthy habits. While 18 to 25 year olds are more likely than older consumers to have cards that are 30 to 60 days late, they are far less likely to have more serious problems.
Want to help your kids develop a healthy financial future? Be sure to do the following:
- Advise them on healthy credit use. Talk to them about the importance of paying off cards on time. Show them the difference between good deals and bad ones when it comes to credit cards.
- Be relatively open about finances. If kids see healthy behavior modeled, they will understand it better. Instead of just saying that you can’t afford something, explain the limitations of a budget and that choices need to be made.
- Consider making your kids authorized users on one of your credit card accounts. Pick a card that you do not use often so that you have an easy way of monitoring use. Require your child to pay up in full each month; if they can’t pay, take the card away. This is a lower-consequence way for them to get a taste of what it is like in the real world.
- When your child is ready, co-sign on a card. This helps build a credit history and good habits that can last a lifetime.
More than anything else, it’s important to make sure that your child understands that credit is just a tool. It’s not a magical extension of your income; it’s a way to control when and how your financial transactions take place. By starting your child early on financial education, you can help him or her build financial literacy and experience. These skills will serve your child well throughout his or her life, giving access to a wider range of opportunities.