SIDING Tips To Educate Young Adults To Be Smart About Credit
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It is important for young adults to learn about credit so they can make smart choices that will positively affect
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their future. Although talking fi nances may be uncomfortable, it is vital for families to have these discussions.
Credit is a necessary component
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reporting agency Experian defi nes
credit as the ability to borrow money
or access goods or services with the
understanding that a person will pay
later. Various creditors grant credit
based on their confi dence that a
borrower will repay what is owed.
Many adults learn about credit
through trial and error. Financial
literacy is not taught in many schools,
although lots of people feel it merits
space alongside literature, math,
science, and other subjects. A recent
NextGen study found only one in six
high school students are required to
take a personal fi nance class in the
United States. In addition, a survey
conducted in 2018 by Chase bank
found only one-third of Americans
were taught what a credit score is by
their parents.
It is essential that guardians share
information about credit with young
adults to help them be fi nancially
solvent and successful later in life.
Here are some ways to help young
adults learn about credit.
Start with credit basics
Speak generally about credit and
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how it is used. Then explain credit
scores, credit bureaus and credit
reports. A credit history and credit
score is important information for
young adults to have early on and
check frequently, as having good
credit improves the chances they will
qualify for loans and earn acceptable
terms in the future.
Help them build credit
Having one or more credit accounts
can help a person establish and
build credit by making payments
on time. Credit card companies
often advertise student and secured
credit card accounts that come with
small or managed credit limits.
Making purchases on the cards and
paying them in full every month
is the best way to improve a credit
score or maintain a good one, says
the Consumer Financial Protection
Bureau. Another way teens can
build credit is through their student
loans. Making small payments on the
principal while in school can help
establish a strong credit history.
Check their credit reports
The Federal Trade Commission
recommends checking a child’s credit
score around the age of 16 or 17. This
will help families fi gure out if there
are any anomalies that may indicate
identity theft or inaccurate credit
issues.
Know the formula for good credit
Forbes says there are fi ve categories
that add up to good credit:
1. Payment history (35 percent):
Always pay bills on time.
2. Amounts owed (30 percent):
Borrow a low amount compared to
the total lines of credit. This also is
known as credit utilization.
3. Length of credit history (15
percent): Keeping accounts open for
a long time is a win.
4. New credit (10 percent):
Do not apply for too much new credit
too often.
5. Credit mix (10 percent):
Having a balance of different types
of credit, such as car loans, credit
cards and other types of debt, is
advantageous.
Share your own experiences
Sometimes the best way to teach
about credit is to be honest about
what a parent or another adult did
wrong with his or her fi nances,
and use that as a “what not to do”
scenario.
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