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How can I help my child establish credit without co-signing a card or loan?

how can i establish my credit

More college students are graduating with debt than ever. Helping them establish good saving habits and a positive credit history early on can give them a better start in their adult lives. One way might be through secured lines of credit or use of their own gasoline or store credit cards, which have lower lines of credit -- thereby limiting the exposure. Let members of the Financial Planning Association of Greater Indiana help advise you. Visit their Web site at

Jason Buck

Charles Schwab & Co.

Rarely would I ever promote the use of credit cards. However, in this case, doing so is actually one of the best ways to begin developing that much-needed credit history.

You may consider using something like a gas or department store credit card. Typically, these have lower credit lines and therefore are easier to obtain. And, of course, having a credit history only works if the history is positive, so make sure you keep the balance below 50 percent of the total credit line; otherwise it can hurt your overall credit rating. Also, keep in mind that while a debit card can assist your child in keeping expenses in line, it will not help him or her establish credit.

Another option would be to use a secured loan (borrowing against money on deposit) -- backed by a certificate of deposit -- which may help build a credit history as payments are made in return.

Lastly, I recently saw a statistic estimating that 80 percent of all college students have been issued credit cards and on average will graduate with $3,000 in debt. Therefore, educating your child on the responsible use of credit will be critical in helping him or her establish and maintain good credit.

Kathleen Hartman

Greenleaf Financial Group

Your children's ability to obtain the best car loans, mortgages, apartments, and possibly jobs, will depend in no small part on their credit history.

While it is admirable to want to give your child an early start, it is even more important to convey the extreme importance of having an excellent credit history.

Many teens -- and adults -- are unaware of the harsh consequences of missed payments, of only paying the credit-card minimum, and of the black hole of high interest-rate charges. Since your children will be

able to obtain credit cards in their own names at age 18, the best thing you can do now is to empower them to make good financial decisions later.

Start with a bank or credit union: Before taking on the responsibilities of credit, make sure your children know the fundamentals of checking and savings accounts. Knowing that earning interest is better than paying interest will be a lifelong advantage. Also, a few early mistakes are inevitable and are best made with an ATM card.

When your child is ready, open an account at a gasoline company or department store. Both often will open accounts for those with no credit history. A cell phone account in your child's name will also establish credit and introduce the many financial responsibilities they'll face on their own.

Paying the balance in full each month is essential. To have a good credit score, keep charges to less than 25 percent of the card's limit.

Vern Roach

Edward Jones

Given what has happened to so many due to misuse and overuse of credit, our children might be much better served if we discouraged the use of credit and borrowing and instead encouraged saving and investing. Rather than helping children be borrowers, teach them how to be creditors.

Teach them how to loan money to the bank by having a savings account.

If they use financial discipline and delay gratification, they're likely to be more appreciative of their possessions. When they demonstrate the maturity, they can access their savings with a debit card.

Children need to know the difference between saving and investing. Owning a stock or a bond is not the same as a bank account. Let them know that these types of investments are not for impulse purchases or short-term goals.

Teach them the difference between short-, medium- and long-term financial instruments. Help them save, invest and plan appropriately to achieve their financial goals.

Guide them as they learn to manage their money, and let them make financial decisions with their funds.

Ensure that they live with the consequences, good or bad, of the choices they make. They will never learn to make good choices if they don't have to suffer the results of their poor choices.

The best choice is to save and invest, instead of borrowing.

Category: Credit

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