How to teach your kids the value of an excellent credit score

Why is good credit important?

Having good credit will give you one major perk in life — options. With a good credit score, you can choose to make large purchases such as a car, sign a lease for housing, sign up for a new credit card, or obtain a mortgage. When you have poor credit or no credit, you have limited financial options.

Having little to no options in life can be suffocating. And my parents taught me this from the start.

My parents didn’t grow up with many options, so they knew they wanted options in their adulthood. They worked hard and built up excellent credit scores. They were able to purchase a second home and make nearly any purchase they wanted. And they taught my younger brother and me about the importance of good credit.

They gave us each an authorized user credit card at a young age, and they did this for multiple reasons. Most importantly, these cards allowed us to start building our credit history even as minors. Having a credit card was also safer than carrying cash, more convenient than always having to ask for money, and it gave them full transparency as to where we were making purchases.

Having credit cards also taught us the value they present to consumers in the form of rewards. I remember my mom bought her car on a credit card, and she used the credit card rewards to pay for Christmas that year. Since then, I have adopted the same mindset. As soon as I turned 18, I applied for my first credit card and have been earning rewards ever since.

While the rewards from credit cards are fun to collect, the main takeaway I got from my parents regarding credit was that good credit gives you financial independence. They taught me to use my credit score to my advantage. Because of this, I have never needed them to co-sign anything except for my student loans. I was able to qualify for an apartment and an auto loan, and refinance my student loans a year after graduating from college because of my established credit.

It is empowering to know that I have a great credit score, and I can make choices to set myself up for financial success.

If you want to start establishing good credit for yourself or your kids, here are a few tips.

Three tips for establishing good credit

There are five variables that make up your credit score. They are: payment history, debts owed, length of credit history, a healthy mix of credit, and new credit accounts opened. With this in mind, here are a few tips for establishing good credit:

• Open your first credit card. It can be a scary task, but it will help you establish your credit history quickly. You can start with a secured credit card or a student credit card if you’re in school.
• Make sure that you are paying your bills on time. If you are a day or two late, don’t panic. Just be sure to call your credit card company to make your payment. They will not report a late payment to the credit bureaus unless you are more than 30 days late.
• Keep your debts as low as possible. Part of your credit score is “debts owed,” which is also known as credit utilization. Said differently, it’s the ratio of how much credit you have access to versus how much credit you are using. For example, if your total credit line is $5000 and you have a balance of $1000, you are using 20% of your credit.