Advice for You (and Your Teenagers) on Establishing Credit
Just this week I had the opportunity to speak at a local High School’s Career Day. Students had the opportunity to hear 4 unique speakers covering a wide range of potential careers: Cybersecurity, Manufacturing, Military, Real Estate, Engineering, Nursing, Graphic Design, etc. I, of course, discussed Financial Planning. While the bulk of my conversations were about pursing a Financial Services career, what a day in the life looks like and the outlook for the industry, it was one of the questions I received that inspired this blog.
As one of our sessions was concluding, a proctor interjected with a question. She was reflecting on her own son and his current experience attempting to get a loan. Unfortunately, neither she nor her husband had ever considered helping him open a credit card. As such, he didn’t have a credit history and the bank had denied his request for a loan. She asked me to share how I had first established credit and any advice I had for the students.
I was so grateful that this woman shared her story because this is something that happens all the time! Students go off to college - having never used a credit card - and are expected to know how it all works!
I was fortunate that my father had also worked in Financial Services so establishing credit and creating good habits was something I was coached on early in life.
In my Junior year of high school, I was told it was time to open my first credit card. Ideally, in my father’s mind, I would get a few good years of coaching before I went off to college. Then, the responsibility was fully my own. For the first year, he would send me on periodic errands: Fill up his car with gas, do the grocery shopping for my mother or buy the dog food. Each of these charges were permitted to go on my credit card. At the end of the month, we’d sit down and review the balance.
I may have only swiped that card 5 or 6 times in total, but when you’re grocery shopping for a family of six, it doesn’t take long for the expenses to add up. I quickly learned, I was not playing with monopoly money. What I spent in a month doing those simple errands would’ve cost all my babysitting money and then some! Luckily, my dad was footing the bill for anything I didn’t buy for myself. We paid the balance in full each time and I learned about minimum payments and how interest accrues if I didn’t pay off the charges.
It was thanks to these early lessons that I had established good credit by my college years. In my junior year, when I was set to study abroad, I was able to slightly increase my credit allowance in case of any emergencies. While I fortunately didn’t need it, it felt good to know I was being trusted by the bank as a financially responsible adult. To this day, I pay my credit cards in full and when I think I am using it too often, I will switch to cash to be more mindful of my budget.
If you have teens who you’d like to be able to get a car loan or mortgage without you co-signing, consider following these same steps my father laid out. It never hurts to create good financial habits early and may prevent you from taking on unnecessary responsibility as a co-signer.
Additionally, be sure to educate your children on how they can monitor their credit report & credit score. If this is a conversation you’d like us to have, feel free to give us a call!
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