Credit scores and your kids: How to explain to them what they are, how they work
It's the credit conversation you can't afford not to have with your children – but fret not! We're here to help
Making complex credit topics simple
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It’s never too early to start teaching children about money, say 83 percent of parents in the Chase Slate 2018 Credit Outlook Survey.
According to the survey, parents are actively discussing budgeting, saving and spending with children. When it comes to credit scores, however, the majority of moms and dads are tongue-tied.
Farnoosh Torabi, financial education ambassador for Chase Slate, says parents may be unsure of how to tackle the topic of credit with younger children who aren’t actively using credit yet. Parents’ own lack of knowledge can also be an obstacle.
“I would guess that some parents are not entirely well-versed on how credit scores get calculated themselves,” says Torabi.
“‘Money and credit’ is the ‘new birds and bees’ conversation every parent should be having with their child to help equip them for their financial future,” says Vic Patel, investor and founder of Forex Training Group.
Understanding the importance of credit scores can help children develop good credit card habits. Here’s how parents can get the credit score conversation going.
Tips for talking with children about credit scores
Brush up on your credit score savvy first
Laying the groundwork for talking credit with your children starts by closing your own credit score knowledge gaps. That means taking a crash course in credit basics, says Jenefeness Tucker, a business, relationship and life coach with Financial Comfort Consulting.
Tucker’s company offers credit education coaching, with an emphasis on how different credit scoring systems compare, the elements that make up a great credit score, credit reports and fair credit reporting, and what can improve your credit rating.
If you’re not comfortable letting someone else peek at your credit, you can find the educational resources you need online via personal finance websites, blogs and podcasts, says Torabi. She also suggests looking at the tools your credit card company offers.
“Chase Slate customers can access a free credit dashboard where they can obtain their FICO score for free each month,” says Torabi, “and learn about the specific factors impacting their score.”
- Pay attention to which scoring model your credit card offers.
- In addition to Chase, American Express, Bank of America, Discover, Citi, Wells Fargo and Barclays, among others, offer free FICO score access.
- Capital One and TD Bank both give customers free VantageScores.
- See the whole list of card issuers that offer free credit scores.
Tailor credit talks to your child’s age
How you approach the credit score conversation depends on how old your children are, and their age should set the tone for what you discuss.
- Tucker says parents can start talking about credit with children as early as age 5.
- You can make the conversation relevant to borrowing in a way children are familiar with.
- For example, you could use checking out books at the library or borrowing a toy from a friend as examples of how “credit” works.
Patel says the biggest challenge in talking credit with children is keeping the conversation interesting.
“The best way I found to do this with my own young teenage daughter is to start with what she understands best at this age – shopping,” he says.
- Patel took her daughter on a shopping trip and showed her how to use a credit card to pay.
- When they got home, he walked her through the finer points of his credit report and score, so she could understand the entire process.
- Making it an interactive experience cut down on stress for both of them.
“Don’t underestimate a child’s potential to understand what a credit score is and the role it can play in one’s life,” says Torabi.
Don’t focus solely on numbers
Children need to understand that credit scores have a numerical value, but they also need to know where that value comes from.
“Talking to children about credit scores is like talking about weight,” says Pedro Silva, wealth manager at Provo Financial Services. “It’s just a number, and the real conversation should be had around the behaviors that create that number.”
- Maintaining a healthy weight involves eating right and exercise.
- Maintaining a healthy credit score means paying bills on time and keeping credit card balances under control.
Torabi offers another analogy for helping children grasp connection between money habits and credit scores.
“Try explaining that just like a report card at school, you have a credit report that lists all of your credit activity – the good and bad,” says Torabi. Then, connect the dots to credit scores.
- For example, explain that to get an “A” on your report card, you have to turn in your homework and do well on exams.
- To score an excellent credit rating, you need to practice good credit habits.
It seems simple, but it’s relatable to children at virtually any age.
See related: What is a good credit score?
Practice what you preach
Torabi says one of the best ways to help children understand credit and credit scores is by setting a good example.
That’s as easy as letting children watch as you write out checks to pay bills or schedule online payments.
“This is a great way to teach the lessons of good credit behavior, without a big lecture or talk,” says Torabi. “Simply show how you’re being a responsible credit card customer and talk about why it’s important.”
- You can also talk to children about past credit mistakes you’ve made and their financial impact.
- If you’ve had a negative experience with credit, emphasize what you learned from it and what you’re doing now to avoid a repeat.
- Finally, give children room to be curious about credit and money to keep the conversation going.
“Encourage your child to ask questions,” says Torabi. “This sends the message that topics like credit are not taboo and that it’s important to be mindful of these types of financial concepts.”
That can help them be more aware and better prepared to manage credit once it’s time to open their first credit card account.
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