Teaching kids how credit work can be a tremendous chore.
STEP 1: START WITH DEBIT
When you help your child open a checking account -- ideally by age 16 -- ask for a debit card connected to the account. Your kid will get the hang of using plastic but can spend only up to the account balance (or risk an overdraft). Review monthly statements together. If he or she regularly empties the account, it's time for a budgeting lesson.
STEP 2: SHARE YOUR CARD
Once your teen has proved he or she can use a debit card responsibly -- and is a high school senior or older -- add her as an authorized user to one of your credit cards. They will get a card with his or her name on it, and the account will appear on her credit report. It'll still appear on yours, and you'll be liable for the bill. So set clear guidelines on what can be charged and who will pay. If your teen breaks the rules, remove him or her from the account.
STEP 3: GO IN TOGETHER
Only after your young adult has used your card responsibly for two years might you consider co-signing on a card in his name. (If Junior has already demonstrated trustworthy behavior, you could have him apply for a solo card before February.) As co-signer you are still on the hook -- in terms of your wallet and credit score -- for any card payments the child doesn't make. So emphasize the importance of paying on time and in full. (Use the credit calculator here to show the cost of paying only minimums.) Monitor the account online, and step in at the first sign of trouble.
Have doubts about co-signing? I know parents are so worried about kids establishing credit. But there's no rush, he adds. If your child isn't ready, it isn't worth risking her credit score and yours.
Mr. Dangerfield is an I.A.P.D.A Certified Debt Specialist whom has worked in the finance industry for over a decade. He manages www.beingbrokesuckstoday.com and is the author of "A Dangerfield Manifesto" and co-founder of SMG Holdings, the parent company of Squad Music Group, Dangerfield Artistic Entertainment SMG Publishing and Taboo Dangerfield Publishing
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