I’m regularly asked how to establish good credit, especially by parents with kids starting out “on their own.” Today I want to address parents about that issue from a few different angles. Let’s say you have a daughter who just graduated high school and turned 18. She’s been working at the local grocery store for the past six months and has a bit of money saved. Your mailbox is full of credit offers for her and that money she has is starting to “burn a hole in per pocket.” What do you do?
First and foremost, parents who want the best for their kids are to be commended! Even though the government considers “your baby” an adult at 18, I won’t give you a reprieve from giving her the appropriate guidance as her mom and dad. You should consider gradually transitioning additional responsibilities to her so she can become more independent, but hopefully this is something you’ve been doing for many years already. While this may not make it as easy on her as you’d like, she’ll appreciate it later (and so will you). Always be open with her about some of the mistakes you made and what you could/should have done, including outcomes.
If she doesn’t already have one, help her to open a savings account and develop the habit of saving NOW. Ask her to commit to put something in savings every paycheck and leave it there. It would be really smart to go to a brokerage and invest some money into a Roth IRA. As long as she has sufficient taxable income, she can open this retirement arrangement and that money can become a LOT OF MONEY over time. I wish someone would have helped me do that at 18.
As for credit – encourage her to destroy any offers for credit and maybe even go a step further by opting out of pre-screened offers. Having worked for a credit card company, I can promise you those things are DANGEROUS and should be totally avoided. There is no good that will come of an 18 year old with a credit card, except for possibly some expensive life lessons.
But here’s the bigger question: why is it important for anyone to have a strong credit foundation? It will make it easier to get a loan, but why do you want debt? Common thought is that you should work on building a good credit score. I say you should instead work on building the habit of saving and act maturely with your money, including living on a budget and saving for larger purchases. Your credit score will establish itself SLOWLY this way (if at all), but this approach keeps you away from most of the dangers and helps foster discipline, maturity and patience – all character qualities I think we should all develop to their fullest potential.