How to Help Your Kid Understand Credit Scores at a Young Age

One of the numerous goals parents have for their kids is to have financial independence. Many parents don’t realize that financial knowledge starts at a young age, and children can begin building good money habits from the moment you give them money to buy anything.

Building credit for your child is also a much-needed lesson for their financial education that will significantly impact their adult life. If you don’t know where to start, read through our guide for tips to help your kid understand how credit scores work.

Build Your Kid’s Credit Score

A kid’s first concept of financial literacy will always begin with their parents. How you handle your finances will be what your kid will learn to do. Before you even start to teach your kid about credit scores, you should have a good record too. “Practice what you preach” is how the saying goes, and it applies to your kid’s financial literacy as well.

Keep a clean slate on your credit cards, and maintain a healthy spending habit with them. Eventually, you can lend your credit card by authorizing them to use it, and your credit history will be their credit history.

Give Them a Credit Card

Finally, your kid is at the right age to have a credit card—but wait! You’re not going to give them their own credit card. Instead, you can make your kid an authorized user of your credit account to provide better guidance.

What happens is that you sign them up as an authorized user, and you’ll receive a card with their name on it. However, every time they make a purchase, you can still keep track of it because it’s tied to your account. Throw away your hesitation out the window and give them that credit card to help your kid advance in their financial knowledge. 

Guide Them Through Every Purchase

The moment you give your kid their card, it’s crucial to state how and when they can use it. Let them know that a credit card has significant responsibilities tied to it, and explain to them how it works differently from paying in cash. That way, it can make a lasting impact in their adult lives, reminding them to take time to think about every credit card purchase they make.

Perhaps you can give them the rule to ask permission from you first every time they use the card. Or ask them what purchases they want to make and then discuss how and when they should pay it off. Guiding them through every purchase can help add to their financial literacy.

Help Them Build Good Financial Habits

Now that your kid has made a purchase, it’s time to help with building credit for your child. This is where you can truly start to make them understand the importance of credit scores. Teach them the incentives of paying on time and how it builds their score, and further into the discussion, your kid will eventually ask what credit scores mean.

Explain to them how it can help them in the future, how it helps when they make their first long-term big purchases, such as renting a space, requesting loans, buying a car, purchasing a house, and more.

Final Thoughts

Many people, even young adults, struggle to understand how credit cards work, which is why teaching it to your kid at a young age will give them a head start. Though even if you follow through with our guide, they might make mistakes along the way. What’s important is to trust them, give them chances, and assure them that whatever happens, you’ll work together to help them become financially independent. 

In this day and age, even young kids can quickly learn the importance of financial literacy with the help of specialized money apps for kids. Download our Kidde Kredit app now and have a fun way of educating your children on the credit system by completing chores and other games!