How
to Help Your Teen Prepare for a Strong Financial Future
(What
Schools Should Teach About Credit)
By Jeanette
Joy Fisher
Our college-bound son
just bought his first home at 21. He was able to buy a home for
forty thousand under the appraised price, get a low interest rate,
finance the closing costs, and pay no money down. How could he
possibly do this? His credit score is over 700.
You can help your
teenager prepare for his or her financial future by establishing a
high credit rating. Offer your teenager these three crucial credit
tips for a great financial future:
1. Start
early. Begin by successfully managing a checking account--
the first credit requirement. Wells Fargo Bank has a program for
children to open joint accounts with a parent as young as 13 years
of age. For a free individual checking account, Washington Mutual
requires a minimum age of 18 or a manager's approval for younger
account holders.
2. Apply for a
major credit card at 18. It's easier to get a first-class
credit card with favorable rates and terms while a student attends
college before the age of 22. Why do banks want to open accounts for
students who have no credit history or employment? Because lenders
know that college graduates in general make more money and also pay
their bills on time. Also, most consumers don't like shopping around
for credit and tend to keep their credit accounts. Therefore,
lenders desire to establish strong relationships with the preferred
market early in their credit experience.
This doesn't mean that
you as the parent need to co-sign; banks expect parents to help out
with the payments when necessary. Just be crystal clear with your
child what you expect regarding debt management. The purpose is to
teach responsibility and to establish credit--not to go into
debt.
3. Manage the
credit card account with credit scores in mind. Once the
account is opened, encourage your child to use the card for
necessities that would be purchased with cash--not luxuries--and to
pay the debt before finance charges accrue. However, don't pay the
entire balance off each month; let a little roll over at least every
two months. Banks don't appreciate accounts paid in full each month.
More important, paid accounts don't factor into the credit score as
much as an account with a low balance.
Explain to you teenager
that the purpose of using a credit card is to establish good credit.
To do this, a credit card should never have a balance over 50% of
the available credit. The best credit scores have accounts with only
10% of the credit line used.
Setting up a checking
account and a credit card account helps your teenager learn about
responsible money management, with the bonus of building strong
credit to finance a home.
(c) Copyright 2005
Jeanette J. Fisher All rights reserved.
Jeanette Fisher is
the author of "Credit Help! Get the Credit You Need to Buy Real
Estate" and other real estate investing books. For more credit
articles and free newsletter, visit the Real Estate Credit Help
Center : http://www.recredithelp.com
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