JACKSONVILLE, Fla. – Let’s face it: the thought of giving a credit card to an 18-year-old can seem scary. But there are safe ways to establish credit for your teenager without racking up a mountain of debt.
Mary Svoboda, the interim president of Jax Federal Credit Union, said the biggest mistake most parents make when it comes to their children’s credit is not talking to them about it early enough. She suggests having those conversations early – before it’s time for them to buy their first home.
There are a few different routes parents can take to make teens understand the importance of having a good credit score and avoid the pitfalls that can lead to bad credit ratings.
“I think it’s about focusing on the future,” said Svoboda. “'There’s going to come a time when you’re going to want to rent an apartment and I want you to do that, so let’s start now.'”
Before we dig into the best ways to build credit from scratch, here’s a free piece of valuable advice from financial advisor Michael Wolf: don’t buy things you can’t afford.
Alright, now that we’ve gotten that part out of the way, how can a young person build credit safely?
Svoboda recommends getting what’s called a secured credit card. Like a debit card, it will only allow its holder to spend money that’s in their account. But unlike a debit card, they can still build credit with it.
She suggests starting with a card from a credit union instead of a store or bank.
“Credit unions are not for profit,” said Svoboda, who acknowledged she’s a little biased on that subject. “We try not to have products with gotchas and hidden fees and things like that.”
Before getting a credit card, Svoboda says it’s important to ask yourself whether you plan to pay off the balance every month? If the answer is yes, interest rates don’t matter as much. If not, they do.
“Those rates and fees can get out of control if you’re not really being careful, so what you want to be is a wise consumer,” Svoboda said.
Remember, building good credit is easy – fixing bad credit, however, is the hard part.