How to prepare young adults for financial independence
Big-life moments such as getting a car, apartment, house or job, and your child’s credit report will be the financial résumé necessary to help him or her achieve these goals. Talk to your child about how to build a financial résumé to be proud of, so he or she can confidently take steps toward financial freedom and flexibility. STATEPOINT
STATEPOINT – As parents prepare their young adults for college and beyond, it’s important to talk about the road to financial independence, which includes building healthy credit.
This is vital for big-life moments such as getting a car, apartment, house or job, and your child’s credit report will be the financial résumé necessary to help him or her achieve these goals.
Use these tips to talk to your child about how to build a financial résumé to be proud of, so he or she can confidently take steps toward financial freedom and flexibility.
• Help build credit history early: It can be challenging to get started on your own without previous credit history. As a parent, you can help start building your child’s financial résumé early by adding him or her as an authorized user on your credit card. Just be sure you always pay on time, because your child will inherit that part of your credit story. Set clear guidelines about card usage before adding anyone as an authorized user. Then, monitor your young adult’s card use and always pay on time, because all reported account activity, including negative information, will impact both your credit.
• Explain the importance of on-time payments: It’s essential to consistently pay all bills on time to build credit health and a story of trustworthiness on your child’s financial résumé. If your young adult is renting, the landlord may report rental payments to the credit reporting agencies, so ensure he or she always pays on time. Talk about putting your student’s name on phone or utility accounts, and then maintaining good standing with on-time payments. Timely student loan payments can also help build credit health. Explain that if accounts go into collections or delinquency, that information will hurt credit health.
• Monitor credit reports regularly: Those building credit for the first time should understand what financial story they’re telling creditors. Young adults who move often should confirm that their current address is on their report, along with accurate, up-to-date information for everything else on file. Inaccuracies can negatively impact credit health and ability to get credit. Everyone is eligible for one free credit report from each of the nationwide credit reporting agencies each year. Have your child take advantage of this at annualcreditreport.com
• Carefully consider a credit card: When your young adult is ready for it, discuss opening one credit card in his or her name, to start building credit length – another important credit score factor. A student credit card may be a good choice because they generally have lower limits. But be sure your young adult does some research to find the best fit for his or her situation. Opening a card, keeping the balance low and making on-time payments can help young adults build their financial résumé’s story of responsibility, which could lead to more creditworthiness in the future.
The college years can be a critical time for young adults in many ways. Parents should encourage students to use these years to get started building the credit health they’ll need to achieve their financial goals.