How to Help Your Teen Build Good Credit

Teenagers have many big borrowing decisions ahead of them, such as buying a first car, post-secondary student loans, and eventually owning a home. For parents, it’s important to get teens on the right foot by teaching them how to manage credit and build a good credit history.

Introducing your teen to credit early on is a good thing. You want your child to understand how credit works, how to build a positive history, and how their score and credit rating changes over time. Having this knowledge will help them avoid taking on high-interest credit card debt and needing to seek relief later in life. 

As a parent, here are three tips to help your teen manage credit:

1. Help your teen understand that credit isn’t free money. It’s important to reinforce that teens shouldn’t spend more money than they have. Your son or daughter will have to pay off the card every month, so having a budget and making sure all their credit card purchases fit within it is still critical. You can help them create a budget by using an online budget worksheet, or something more tech-friendly that they can take with them like the online tool You Need a Budget.
    
2. Don’t just make the minimum payments. A credit card statement will include a minimum payment amount, but many people might not read the fine print that shows exactly the amount of time it would take to pay off the card making just minimum payments. Point this out on your teen’s first bill, and make sure they know to pay off the full amount on a regular basis.
    
3. Teach them about credit ratings and credit history. Your credit history can affect your financial future. Helping your teen understand that the spending decisions they make now can affect big decisions later in life is a great way to give context in the given moment. If your child wants to get a loan or rent an apartment in a few years, making those monthly payments on time and in full now will make a difference.

If your teen is under 18, you will have to co-sign for his or her first credit card, so it is important for you to understand your responsibilities. Missed or late payments have an effect on your credit history. The Financial Consumer Agency of Canada (FCAC) sums up parents’ responsibilities very well and includes other useful information such as how to shop around to compare fees as well as how to read a credit card agreement carefully.

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Are you teaching your teen about credit? For more #DebtSolutions tips, join the conversation and keep an eye out for my next column.