As a parent, you are responsible for teaching your kids many different important life lessons. When they are young, you help them learn how to walk and talk. A few years later, you start teaching your kids about reading, writing, and arithmetic. Yet somewhere between lessons about the golden rule and the sex and drugs talks, a lot of parents forget to educate their children about finances and credit responsibility.
Talking to your kids about credit and money is critical to their future well-being. While teaching your children about saving and budgeting, it is also a good idea to educate them about credit mistakes which they will need to avoid.
Mistake #1: Overspending on Credit Cards
Credit cards themselves are not inherently evil (although there are some people who mistakenly have a different opinion on the subject). However, credit card debt is absolutely something that should be avoided and taught early in life.
When used properly, credit cards can help build great credit and impressive credit scores. Yet when you charge more than you can afford to pay off in a given month, you can simultaneously waste money on high interest rates and potentially harm your credit scores when your credit cards reflect a high rate of utilization on your credit reports. You should teach your child to only charge as much as they can afford to pay off in a given month in order to maintain optimal financial and credit health.
Mistake #2: Late Payments
It is important for your child to understand that, when it comes to credit, late payments are a very big deal. Credit scoring models are designed to consider whether or not you have late payments on your credit reports more heavily than any other factor. What this essentially means is that your child will never be able to earn and maintain good credit scores unless he or she determines to avoid making late payments at all costs. Even the occasional small, 30-day-late on a credit report can potentially have a very damaging impact to their credit score.
Mistake #3: Failing to Check their Credit Report
Your child also needs to understand that routine credit checks are an important part of maintaining good credit. Between the amount of credit reporting errors, which occur due to mistakes made by the credit bureaus and creditors, and the rise of data breaches and identity theft, the need to keep an eye on credit reporting accuracy has increased over the past few years.
The good news is that checking your credit is quite easy. You and your children (once they turn 18) can access all 3 credit bureau reports completely free once every 12 months at AnnualCreditReport.com. Once you have claimed these free annual reports, there are also a number of websites where you can monitor all 3 of your credit reports and scores monthly for an inexpensive fee.
Mistake #4: Not Asking for Help
There is no question that avoiding credit mistakes in the first place is the wisest course of action to follow. However, sometimes you can encounter credit problems despite your best intentions. Job loss, illness, divorce, and a host of other unforeseen issues can take a serious toll upon credit reports, even if those reports were previously in great condition. For this reason, it is important to remember to teach your children what to do when and if credit problems do arise. Asking for help from a reputable credit repair company can be a great place to start.