How You Should Help Your Children Start to Build Credit

As parents, you want to do the best you can for your kids by teaching them good habits from an early age. While wanting to do everything for them, sometimes all you can do is show them the best way to do something, provide encouragement and pointers and then leave the rest in their hands. 

At What Age Can You Start Building Credit as a Child?

Building credit in your teen years, while it takes some time and effort to earn a score that will be favorable when the need for borrowing comes up, can pay off in significant ways. This represents your first chance to begin building credit.

What is Credit?

Credit works when someone, usually a bank, credit union, credit card company, or other financial institution, lends you money through a loan or line of credit.

What is a Credit Score?

Your credit score usually falls in a range between 400 – 900, though alternative models exist with slightly different ranges. Higher scores indicate better credit and can make you a prime borrower, whereas lower scores place you in the subprime borrower category.

What Goes into a Credit Score?

1. Timely Payment

Making timely payments is important for your credit score, representing as much as 35% of your total FICO score. Missing one payment can have a negative impact on your credit score, though it shouldn’t ruin it entirely.

What Goes into a Credit Score?

2. Credit Utilization Ratio

Your credit usage, especially in relation to your available credit, can determine your credit rating as well. The metric used to measure this credit usage, called the credit utilization ratio gets calculated by dividing your outstanding revolving credit balances by your total available revolving credit balances.

What Goes into a Credit Score?

3. Credit History

Lenders want to see how long you’ve had credit and how well you’ve handled while open. This credit factor can determine 15% of your FICO score by evaluating the average age of your open lines of credit.

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