Building a Strong Credit Foundation for Your Children

Ben Franklin once said, “Nothing is certain except death and taxes.” While he was not wrong, we should add “credit scores” to his famous quote. Developed in the mid-1990s and later standardized by Fair, Isaac, and Company with the FICO score, modern-day credit scores are algorithms that impact nearly every significant financial decision including buying a home, securing a loan, and applying for a job.

With so many aspects of life tied to credit, why not help your children build good credit before they turn 18? Establishing good credit and, more importantly, good credit habits can set them up for financial success and reduce their challenges later in life.

A savings account is the first step to establishing good credit. Many banks and credit unions offer youth savings accounts with no fees. Encourage them to deposit birthday money, allowance, or earnings from a part-time job to build the habit of saving.

After utilizing a savings account to establish good savings habits, consider adding your child (if under 18) as an authorized user on your credit card or helping them open a credit card of their own under your supervision. Primary factors that increase modern-day credit scores are the length of credit history and payment history. Opening a credit card and employing proper paydown habits will give them a head start. Most credit cards will allow spending limitations to ensure good habits. Tell them to use their credit card only for certain purchases, like gas or food.

After turning 18, they can check their credit report for free through AnnualCreditReport.com. In addition, interested people can set up an online account at the three credit reporting bureaus to monitor their scores (Experian, Equifax, and Transunion).

Building and maintaining good credit is a long process, sometimes boring, but small, intentional steps today can set them up for financial success in the future. Have you already taken these steps? Great! Contact your Heritage Wealth Architects team to find out what is next to advance your family’s financial future.