Youth can build credit history through positive use of credit cards

Knowledge of how to build credit and monitor their credit score can help youth have a successful future. Credit cards can aid in building a credit score if you use them wisely.

Today’s young adults contribute more than one billion dollars annually to our economy through their spending. If high school and college-aged youth are spending that much money, it seems logical to help them use their spending in a way that will establish a solid credit history. While there are a variety of ways to establish a solid credit history, one useful and effective method can be through credit cards. 

First, it is important that young people recognize good credit is a privilege to be earned. It takes time to build a good credit history which can then benefit them for years to come. They must also understand that debt is easy to get into, hard to get out of and if not managed, can result in a poor credit rating that will negatively affect them for 10 years or more. Unfortunately, many young people do not understand the implications of spending beyond their means with credit cards. In a personal finance survey conducted by the Jump$tart Coalition in 2004, it was reported that “45 percent of college students are in credit card debt, with the average debt being more than $3,000.” 

A credit card is a form of borrowing money. When a young person signs a credit card application, it is binding. It represents an agreement to repay dollars borrowed through the privilege of using a card to pay for something instead of cash. If payments are made prior to due dates on bills received, over time the youth creates a history of consistent, timely repayments and a good credit score is built. A positive score of 800 to 850 will ensure that in the future they are able to rent an apartment, take out a home mortgage and command better interest rates on insurance policies or loans. It may even help them to secure a job. 

A few simple steps used to help guide young people in taking the right path are: 

  1. Help them research credit cards and choose one that is right for their needs and situation.
  2. Establish a system with them for tracking monthly expenses charged. This provides a visible picture of how much debt they are incurring.
  3. Have youth be accountable for paying their bill each month out of their personal checking account. By doing this they will become accustomed to bill-paying procedures and track any remaining account balance.
  4. Teach youth how to pull a credit report through the agencies of TransUnion, Experian and Equifax. One report is available free of charge from each of these agencies on an annual basis.

Helping youth understand the importance of credit and a good credit rating will prepare them for a successful credit history in the future. Michigan State University Extension offers numerous training opportunities to adults interested in educating youth on personal financial issues. This year, six trainings on the National Endowment for Financial Education High School Financial Planning Program curriculum will be held in Michigan. You can register here.

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