How to Help Your Child Build Good Credit

Parents play an important role in helping their children build good credit. If you are a parent, what can you do to help your child build good credit?  Consider the following tips:

Apply for a student car loan.  If appropriate, a student can benefit from driving his/her own car.  You can help your child acquire a car loan for students by being their co-signer.  By acquiring a car loan in his/her name, a student can establish credit history at the same time.

However, your child should understand the responsibilities involved in maintaining a car and repaying a car loan.  Assist your child by ensuring that they promptly submit their monthly car loan payments. Encourage your child to discuss matters with you if there is a problem with their finances.

Acquire a student credit card.  It is technically easy apply for a student credit card than a bank loan.  However, if a student is below 21 years old, he/she will still need a co-signer to get approved for a student credit card.

As a parent, you are the perfect person to co-sign for your child’s credit card.  You can also guide your child in comparing student credit cards in order to find the right one.  Take the time to explain to your child the terms found in the fine print.  Students may not understand what APR means or how interest rates are calculated.

If you have experience in using a credit card, share some tips on how they can use a student credit card for his/her benefit and avoid falling in the trap of bad credit. A student should also be aware about the importance of paying their credit card balance in full and on time each month.

Monitor credit report.  Students must learn the value of regularly monitoring their personal credit reports.  All consumers are entitled to receive one free credit report annually from each of the three major credit bureaus (Equifax, Experian, TransUnion) – through

Encourage your child to check his/her personal credit report at least twice a year to ensure that all payments have been reported to the bureaus.  In case there are errors, consumers have the right to dispute them as stipulated in the Fair Credit Reporting Act.  This can be done by sending a dispute letter to the bureau that issued their report.

Use credit wisely.  Having a credit card can be a great privilege but students must not forget the responsibilities associated with it. Even if a student credit card offers a low-interest rate, maximizing credit limit should be avoided.  Why is this necessary?  This is because 30% of the FICO credit score is based upon credit utilization.

If a student gets into the habit of maximizing his/her credit card limit, his/her credit score can suffer as well.  Even worse, frequently maximizing limit increases the risk of debt build up.  By keeping credit card charges minimal, a student will have an easier time paying off his/her charges.

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