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You want to give your kids a good shot at life no matter where it takes them. This is why teaching them about money and how to build credit will help them once they’re on their own. With changes to federal law in Canada, there are great restrictions for students wanting to gain access to credit products. It’s generally more difficult for young people to get started on building credit but you can help. Credit is important because it gives them more options when it comes to renting.
During college years, this is the best time to get your kids started on the process of building credit. Once they graduate, credit generally makes getting started easier. Even if they get a good job, it’s going to be at least one year before banks and landlords take them seriously as a responsible adult. There are some things you can do to help them start the process.
If you have a teenager, you can teach them about credit building young before they have a chance to use the benefits of it. There are some important concepts you can teach them about including:
Explain to teenagers that if they pay off the amount they’ve spent every money, they won’t have to pay interest. If they aren’t able to pay the full amount, it should be a red flag that they’re overspending. Work with your teen to set goals for savings so that when they do make purchases on their card, they can pay it back right away with their savings. Help them to understand that when they only pay the minimum, it costs them money over time. You can use a credit card payment calculator to them so they understand what this looks like and how much it will cost in the long run.
Make sure your teenager understands the concept of credit. It’s not meant to be money you can spend. Explain to them that when they have to make payments on their credit products, they actually end up with less money because of interest. Show them the breakdown of what is charged to them when they don’t pay on time and have an outstanding amount. Your teen should make sure that whatever they buy on their card fits into their budget.
When starting your child off with a credit card, it’s important to explain the full life cycle of it. Let them in on their credit report and explain what a credit score is. Help them understand that there are consequences of bad spending habits. Tell them about Equifax and how it works to help them build a credit history.
This report will have personal details, a history of debts, and credit accounts. These bits of information will often linger and make it difficult to get other loans. Landlords also have access to this information so your child could miss out on desirable rental options. Explain to them that not carrying too much debt and paying bills on time and in full will quickly build credit so they can apply for a mortgage or buy a new car on a loan one day. Help them to understand the rewards they can get if they’re disciplined about spending responsibly from the beginning.
When starting your child off with a credit card, it’s important to explain the full life cycle of it. Let them in on their credit report and explain what a credit score is. Help them understand that there are consequences of bad spending habits. Tell them about Equifax and how it works to help them build a credit history.
This report will have personal details, a history of debts, and credit accounts. These bits of information will often linger and make it difficult to get other loans. Landlords also have access to this information so your child could miss out on desirable rental options. Explain to them that not carrying too much debt and paying bills on time and in full will quickly build credit so they can apply for a mortgage or buy a new car on a loan one day. Help them to understand the rewards they can get if they’re disciplined about spending responsibly from the beginning.
In most cases, your kids aren’t going to qualify for credit cards, but you can still help them to build credit. Here are a few ways:
If you have good credit, you can add your kids to an account you have as an authorized user. Your child will get a card of their own with their name on it. You’re responsible to pay the bill and your credit will ride on this, which is why it’s also important to educate them on how to use a credit card mindfully and make them accountable in some way.
You can co-sign for your kids as well. When you do this, both your name and their name will be on the account. This makes both parties responsible for paying off any debt. You may have to do a bit of research to find an issuer that will agree to a co-sign for a student.
There are a variety of different secured credit card products out there. They are low risk as there is a security deposit required, which is the total credit limit your child will have. It’s much easier to obtain this kind of credit card because there’s very little risk to issuer. There are age and income restrictions involved but if graduation is near and job prospects are ahead, it’s a good option and worth trying. This type of credit card does help build credit and teaches your child how to responsibly use it.
You can help your kids by co-signing or finding information that will help them procure their first loan or credit card. When you pass down your good habits to your kids, they can more quickly build their credit and become more independent financially at a young age.
You can co-sign for an account or a credit card with some issuers.
Some credit card companies will let you add an authorized user even if they’re under the age of majority.
By adding your child as an authorized user onto your credit card account, they can begin to build credit. Do keep in mind that as the main account holder, you’re responsible for paying the bill.
In some provinces, you must be 19 while others require you to be 18.
If a child is 16, they can start to legally work, which could help them to get a credit card once they’re of age. Also, making them an authorized user will help them build credit before they’re of age to get their own card.
Yes, when you add your child as an authorized user, it can help build their credit.
