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5 Lessons to Teach Kids About Credit

RewardExpert Team

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May 14, 2020

What have you taught your children about credit? Even if you think you have never given them a lesson, you probably have. The way you spend your money, talk about money and live your life in general are absorbed by your little ones. Has your child ever asked you for something and you had to tell them you could not currently afford it. They might even suggest using a credit card as they have likely seen them used to buy things. Your child may be under the impression that a credit card is like free money if you haven’t explained how they work.

This early exposure carries on into their adolescence. So even if you have never sat down with them and specifically addressed credit cards they have probably already picked up on some of your spending habits. So, before they are on their own and given carte blanche, it is important that you make sure they are equipped with some basic knowledge as opposed to letting the myths of childhood linger. Instead of letting them pick and choose what they think they know about credit give them some basic information today that can help them shape their future tomorrow.

What is credit:

This is a lesson that can be taught early on, but is important at any age. While kids are still young it is important for them to know that credit is not free money. Explain to your children that that money has to be paid back. Also let them know that the longer the money takes to pay back the more the it costs. They should also know the difference between debit and credit cards.

Responsible use of a credit card may go against what your child has previously believed. Many kids think that credit cards are for when you don’t have money. When in fact it is the exact opposite. Let them know if you didn’t have money you would not be able to pay it. Let them know that paying on time is one of the most important parts that help determine your credit score.

The importance of a credit score:

Let them know they will be graded and they will receive a score based on responsible use and repayment of their credit card. Teach them that the score can range from 300-850. Even young children will understand the difference between a couple of hundred points and that, with the exception of golf, having a higher score is better.

Not having a credit score can be worse than a credit history with some mishaps. If you think it is better to not use credit cards and just pay with cash or a debit card you may not have considered the ramifications of not having a credit score.

Credit scores can be used for more than just obtaining credit. They can affect employment, insurance rates and the ability to lease an apartment. Although a mortgage may be beyond their needs right now they should know that an excellent credit score can save tens of thousands on interest rates over the life of a loan. You can even use a mortgage calculator to give them a visual example of how a couple of tenths difference in an interest rate can cost a chunk of money.

If you have good credit you may want to consider adding your child as an authorized user on one of your accounts to aid them in establishing a credit score.

Credit score kids — Discuss the basics of credit and credit scores with your children

Why they shouldn’t overspend:

As your child matures it is important you talk to your children about things like debt and how to avoid it. They should know about budgeting and how you need to pay for and acquire things over time. Explain how you spend your money and where it goes. Make sure that they know that many of the things they take for granted like food, shelter and clothing all need to be paid for with a certain amount of money before things like entertainment and material possessions can be considered.

If your teen is an authorized user on one of your cards stay strict and make sure they adhere to the rules and limits you have provided. Being lenient can cause them to establish bad spending habits. Keep in mind banks and credit bureaus will not forgive mistakes as easily as you might.

Make sure you have set parameters for use of the card like what they can spend on and what their limits are. Be sure to monitor your statement to be sure they are sticking to the rules. If you let them repeatedly overcharge they will be likely to overspend in the future. So be stern and stick to the limits it’s for their own good.

Discuss credit limits with your children. This may seem like laymen information as you may think everyone knows credit cards have limits. However, when youngsters are new to credit they may think that they can spend up to the limit. Therefore, if they have a card that has a $1,000 limit they can spend $1,000. What they may not realize is anytime you are carrying a balance that is more than 30% of your limit it can negatively affect your credit score. So, on a card with a $1,000 limit anytime you carry a balance of more than $300, it could cost a little more than just interest but possibly some points off your score as well. This is known as credit utilization and the higher you get to the limit the more negatively it can affect your score.

kids overspend — Teach your kids not to overspend

Monitor credit regularly:

Now that they have been taught what credit is and how to use it they should be taught how to check on it. It is important that once they establish their credit that they take steps to maintain it.

Monitoring your credit is so easy nowadays there is no reason not to do it. There are several apps available that can give you a weekly updated score on demand. They should check it regularly to be sure there are no mistakes and that all looks good and hopefully it is going up!

Protect private information:

It is also important to teach your children how to protect their private information. From internet phishing scams to card skimmers there is no shortage of those trying to get their hands on coveted personal information. To avoid electronic pick pocketing get your teen a wallet with RFID blocking technology

It is imperative they realize the importance of a credit card or social security number and the havoc it can wreak if it falls into the wrong hands. Make sure your teen knows never to give out their credit card information to friends or to loan anyone their card. It is important that they realize the extent of damage this can cause.

If they use the card often on the internet they may want to attach the card to a secured payment method that is widely accepted like Pay Pal. Make sure they know to never give out any personal information to someone over the phone. And always properly dispose of important documents such as credit card and bank statements or anything else that has important identifying information by shredding.

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4 New Year’s Resolutions for Personal Finances

RewardExpert Team

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April 14, 2020

It’s that time of year where everyone is talking about the goals they plan to set for the new year. There’s a lot of talk about getting to the gym more and eating less junk food

While all this is well and good there is a three-digit number that may be getting sadly ignored. Not your weight. Your credit score. While you are going to want to keep that number on the scale low you are going to want to get that credit score to gain as much as possible.

So this year New Year make a commitment to your credit score. Resolutions like these will not only have a positive impact on your future and lay a pathway for success, but they’re great to boost morale which can easily lead to a couple of pounds shed.

Repair your credit

A good credit score can be a vital tool in building a successful life. Most people know that a having bad credit can make it impossible to get a mortgage, but what you may not know is it can also affect other things like car insurance rates and may even be considered by employers when being reviewed for a job. In many cases this three-digit number called your credit score may be to some the only indicator of your level of responsibility.

By taking a quick look at your credit report, you’ll find out what’s keeping your score down, and with that information you can begin taking the actions necessary to fix it. There are several things that could potentially have a negative impact on an individual’s credit report, but one thing that everyone needs to keep in mind is that the information found in their reports may not be 100% accurate.

In 2013, the information released from a study conducted by the FTC determined that one in every five American consumers (21 percent) has an error on their credit report. If you see a negative mark on your report that you feel is an error, you may be able to dispute it. Examples of errors that are eligible for a dispute include:

Information pertaining to accounts that aren’t yours
On-time payments that were reported late
Inaccurate information about credit amounts, account balances and account statuses

Unfortunately, not every negative mark on a person’s credit score is going to be an error. We all know mistakes can happen and nobody is perfect. Whether you have made a recent mistake or have been neglecting your score for years there is nothing unfixable. However, if you don’t do anything it will not fix itself.

Fix Your Credit — It’s a good idea to repair your credit in the coming year if your score is low

Some measures you can take to improve your credit score include paying off debts and opening a secured credit card if your score is too low to qualify for a traditional one. Some mistakes have quick fixes, but depending on the damage the main thing you may need is time.

Get out of debt

The first thing that everyone must do when trying to get out of debt is think about how they got into debt in the first place. Yes, it’s true that most individuals will get themselves into debt after a series of irresponsible impulse purchases, but it’s possible to have gotten in debt for reasons that were out of your control. Whatever the reason may have been, reflecting on how you got into debt is important so it can be prevented in the future.

Once you’ve identified the reason for being in debt, it’s important to create a plan that will get you out of debt faster. When budgeting, review your expenses and decide what purchases are necessary. Going forward, avoid making those purchases you’ve deemed unnecessary to avoid creating more debt, and only focus on purchases that are crucial.

It is also vital that you budget an appropriate amount towards paying off your debt. If you’ve only been paying the monthly minimums, you will not see a significant decrease to your debt as you will mostly be paying interest. Making only the minimum payment will also prolong the amount of time that you are in debt.

Get Out of Debt — Work on getting out of debt if you carry a balance

Organize your wallet

Many people have more than just one credit card. If you’re someone who’s been opening several new credit cards throughout the years, it’s highly likely that either some of those cards have expired by now or you have no further intentions of using some of them. If this is the case, it might be a good idea to manage the cards you carry in your wallet, to start the new year off with a clearer head.

Know what credit cards you want to use for what purposes. It is a good idea to have more than one card in your wallet but I suggest not carrying around cards that you don’t use regularly. However, I do suggest keeping most accounts open.

I wouldn’t close unused accounts for several reasons. Older cards can be good for your credit age and the length of your credit history. Your debt to credit ratio may also be affected by closing unused accounts as the amount of their limit comes of the top of your overall credit.

However, closing cards with low limits that have not been open for a long period of time will probably have little impact. This should only be done if you’re not planning to apply for a mortgage or loan anytime soon, since it can potentially affect your credit report which could cause your score to take a temporary hit.

Organize Your Wallet — Clean out your wallet and organize the cards you use most to maximize rewards so they are easily accessible

Start using credit wisely

The best thing you can do to enhance your credit in the new year is to educate yourself about proper credit card etiquette. By following a few basic rules, you can successfully avoid becoming another victim of credit card debt and maintain a proper credit report.

One thing everyone should know is that you should never max out a credit card. This can cause your credit utilization to spike, which will then lead to a negative impact on your credit report. Ideally you never want you use more than 30% of the limit on any card. The more of the limit you use the worse it will be for your score.

Another important thing to do is to track your spending and live within your means. To successfully live within your means, you should follow a budget that never extends beyond your paycheck.

Also, everyone should have a savings account or emergency fund. In the event that you either lose your job or there is a disaster, a savings account or any type of emergency fund can save you from being consumed by credit card debt.

So, next year work on using your credit wisely so you can have the banks give back to you through rewards and benefits, rather than you paying the bank.

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