The Young And The Credit-less: How To Build Credit When You Have No Credit
by Jeremy Maher
There is something happening in this country and if you’re like me, it’s going to scare you:
Young people are having a harder time obtaining the credit they need to get student loans, buy cars, homes and get credit cards and they (or you!) don’t know how to build credit.
Young people are the future of the economy, and their buying power has been dramatically limited by laws stating they can’t get credit until they are 21 years old! (unless co-signed with a parent)
I’m not going to beat a dead horse or impose my views on you, but I think we all can agree that this is pushing it a little bit.
Lots of 21 year olds are out on their own and living their lives. They are graduating from college or at least well on their way. They are working, going to school, planning weddings and becoming adults.
I don’t know about you, but isn’t learning how to build credit and learning to manage your money almost a rite of passage into adult-hood? It’s having that new car that you work so hard to make the monthly payments on. Managing your money is eating Ramen noodles and macaroni and cheese 6 nights a week while you work to get it right.
Why did they have to make a law like this?
When you consider the motivation behind the legislation. you have to understand that many young adults don’t really know how to build credit or manage it. So, they have a credit card and run it up on things they don’t really need.
When parents haven’t taken more time to teach their kids about credit and how it works our kids don’t really get how to build credit when you have no credit.
Many parents don’t really know how credit works, so how can we teach our kids how to build credit when they have little to no credit?
You can begin to give your kids a start on how to build credit, but you might also want to be prepared to take care of things if they get themselves into a situation.
Here are 5 lessons to help your child with credit and financial responsibility:
First things first: as soon as your child starts earning money, make them start saving. If they get into the habit
of it early, they will stick with it throughout their lives. If they learn how to save, they will have an emergency fund for the first time they splurge on their credit card and owe a large amount of money they normally might not be able to pay back.
And number two: Teach your kids to spend their money the right way. Don’t encourage them to buy things with their money that’s more expensive then what they have in their wallet. Instead, give your child options that work within their means. Don’t offer to “pick up” the difference unless you’re planning to teach them to pay you over time.
Tip number three: It sounds cruel, but you should get them started paying for “bills” early on. For instance, if your child wants a cell phone, maybe have them give you the money it costs you each month to pay for their service. Even if you choose to put the money in an account for him later on, this is a great way to give your kids a sense of responsibility. Driving? Make them pay for their insurance and at least part of the upkeep and gas on the car they drive.
Essential number four: As soon as your kid starts working, get him a checking account and savings account. You can have your name on it with them, but this needs to be the account your working age kid is responsible for.
Essential number five: Help them build their credit. Co-sign for a credit card or car loan that your kids can afford to pay on their own. They will be building their credit and learn how to make sure that they can pay for their debts on time.
That’s all it really takes to help your kids (or yourself) begin to understand how to build credit when you have little credit, so you can create a strong financial future!
Learning to have and manage your credit is a lifelong process. It doesn’t come overnight, but you can give your kids the things they need to build the credit they will need forever. So start today.
No matter how old they are, there is no better time than right now to both learn how to build credit and also maintain it.
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