Mom and daughter paying with credit card
Photo: Creatas/Thinkstock
Once your child turns eighteen, offers for credit cards are sure to come pouring in. So how can you prepare them to know how to manage the cards, what is a reasonable debt and the importance of a credit score? Jean Chatzky is here to help with Step 6 of her 6 Steps to Raising Money-Savvy Kids.
As anyone who watched Oprah's Debt Diet knows, we have a huge debt problem in America. Although there are many resources in Oprah's Debt Diet section, many of which would apply to your children—particularly those in college—there are a few lessons you should emphasize to not just raise money-smart kids, but credit-smart kids as well.

A credit card is a valuable tool
I believe this wholeheartedly. Having a credit card at their disposal is, I believe, important for children who are about to leave home. With a credit card in their wallet they have cash available—immediately—should they need it to buy a plane ticket to fly home in an emergency, for instance. However, I think this tool should come with the same instructions my mother gave me the first time I got behind the wheel of a car. She said, "You are taking on a huge responsibility. You are now in charge of something that could destroy lives—including your own." Ditto for a credit card if handled improperly.

A credit card can be a very expensive way to buy things
Research has shown us that college freshman and sophomores tend to be a little frightened of their new plastic. They tend to reserve them for emergencies. In the later years of college, however, a change takes place. Student loan debt starts to mount. The numbers get huge—daunting—and all of a sudden, these same students use their credit cards with abandon. Why?

Researchers surmise that they have never been taught the difference between good, inexpensive student loan debt (in my book, good debt is debt that gets you somewhere—it's your first mortgage, the car loan that gets you back and forth to work, or educational debt) and expensive credit card debt. So be sure to teach that to your children before they go off to school.

And remember what Ms. Beck taught my son: If you put $500 on a credit card one month and only pay the minimum, you owe more the next month—even if you don't buy anything else. Instead, you're best off if you charge only the amount you can pay in full each month. Then the rate of interest on your credit card is meaningless. Why? You never pay it!

Once you have a credit card, you have a credit history and a credit score
It's a parent's job to teach their kids that a credit score is something to be valued and protected. A credit history is a file kept on you and your spending and payment history at the three major credit bureaus: Trans Union, Equifax and Experian. That history is digested by a company called Fair Isaac and converted into your credit score, which ranges from 350 to 800. The closer you are to 800, the more responsible a consumer—and an individual—you are considered to be. Very few people have a score below 500. A score of 660 or more is good. A score of 720 or more is great. People with good and great scores enjoy some valuable benefits. They are able to get credit cards, mortgage and car loans with lower rates of interest. They are able to get better deals on homeowners and auto insurance. They are more easily able to rent apartments and get jobs because, these days, landlords and employers check credit scores as well.

You can keep your credit score up by...
  • Paying your bills on time (that means the payment lands before it's due, not even one day late).
  • Making sure you are not even close to maxing out your credit cards (using no more than 30 to 40 percent of your credit limit is best).
  • Cultivating longstanding relationships with your creditors.
  • Eventually showing you're able to pay off a variety of creditors including auto lenders, utility providers, even your cell phone provider, without fail.
Make checking your credit a habit
Everyone is entitled to a free credit report from each of the three credit bureaus each year. To get yours (or to encourage your kids to get theirs) go to Then pull one credit report from Trans Union. Four months later, pull Experian. Four months after that, pull Equifax. Then repeat the cycle. Keeping tabs on your report will insure you haven't been a victim of identity theft.

Did You Finish the Other 5 Steps to Raising Money-Savvy Kids?
Step 1: Stop spoiling your kids
Step 2: Give an allowance...then make it work
Step 3: Make saving and investing a habit
Step 4: Teach your children to work
Step 5: Teach your children to give 


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