Kids and Credit Scores

Are credit scores useful, and if so how should we prepare our kids for success with them? Booth brings her experience as a mom and certified public accountant to this discussion of the best ways to set yourself and your child up for success with regards to credit scores. Find more educational material and lifestyle tips on boothparker.com!

Listen to the episode Adding your Child to your Credit Card
Read about this topic on her blog: Kids and Credit Cards
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• (00:00) - Kids And Credit Scores
• (00:14) - Putting Your Kids On Your Credit Card
• (00:55) - Why Credit Scores Are Important
• (01:46) - Good Credit Helps Your Mortgage
• (02:34) - Good Credit Helps Your Car Payment
• (03:38) - Good Credit Helps You Rent
• (05:16) - Summary: Advantages of Your Child Having Good Credit
• (06:05) - Benefits For Adults
• (07:02) - Conclusion
• (07:36) - Outro

This podcast is produced by Rooster High Productions.

Creators & Guests

Host

Booth Parker, CPA

Financial guru by day; domestic diva by night and sharing it all in between.

What is MOM-enomics with Booth Parker, CPA?

Real moms. Real mom financial issues. Real moms in business. Real stories. I am Booth Parker. A CPA, wife, and mom that loves all things home and family. In this podcast, I talk all things money for moms, families, and small business. From tips to ideas to info you just need to know, I break it down so moms can apply it to their own families and businesses!

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Putting Your Kids On Your Credit Card
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Recently I did an episode talking about putting your kids on your credit card. I will link that in the show notes in case you miss that and would like to listen or read it on the blog. And the reasoning behind that, that thought process of putting your kids on your credit card is to start building a credit history for them.

So when they're a minor and you put them on your credit card, your credit history attaches to them. So if you have a good credit history, you can start helping them build a good credit history and therefore a credit score.

Why Credit Scores Are Important
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So why would you want to do this? There are many people that think [00:01:00] negatively about a credit score. Some call it the I Love Debt score and insinuate that you only need a credit score if you have the intention of taking on debt. While your credit score is a measure of your debt, your debt history, your repayments, all of those kind of things.

In an ideal world, it would be measured on maybe your financial literacy or your ability to stick to your budget and meet it and things of that nature. But unfortunately, that's not the case. So while the credit score is measured off of debt, it still is an important thing to have even more so than it was 10, 15, or 20 years ago.

Good Credit Helps Your Mortgage
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First of all, as we all know, it is very difficult getting a mortgage these days. The, uh, the prices of homes has risen drastically, and we are currently in a high interest rate [00:02:00] environment, so that means the payments on a house are much more expensive for the same house than they were a few years ago when the interest rates were lower.

While you can get a mortgage without having a credit score and credit history and all of those kind of things, it is much more difficult, a lot more hoops to jump through, and you will most likely pay an even higher interest rate because you don't have that credit history for the lender to use to approve your mortgage.

Good Credit Helps Your Car Payment
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Cars are another one. So I spent probably close to two decades in the automotive industry, so I know the car piece pretty well. And yes, it is ideal to pay cash for a vehicle. It is not ideal to buy a vehicle and finance it for say, 96 months. Just you can afford the payment on the fancy car you want. But [00:03:00] in today's environment, it is not always realistic for someone, especially a younger person, to be able to pay cash for a vehicle that will be reliable for them to use day to day.

Therefore, a lot of times a vehicle loan of some sort is needed, preferably on a short term. You know, you don't wanna end up with a negative equity situation. But again, this is where a credit history, a good credit score and those kind of things for a young person will help them get a lower interest rate, keep that payment down, and help them stay within their budget.

Good Credit Helps You Rent
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It helps to have a credit score and a good credit history if you're going to go apply for a mortgage or if you're going to need an auto loan of some sort, but it's also important to have a good credit score, even if you're just going out to rent a property. So most landlords nowadays, they check your credit score.

They want to make sure you're going [00:04:00] to pay your rent. And that you're going to be a reliable tenant in this day and age where even rental properties are extremely hard to come by. You don't wanna be the person applying for the apartment or the condo or whatever and not being able to get it because the landlord doesn't have comfort with your lack of credit history or lack of a credit score.

It goes one step further and that utility companies, they're gonna do . Most likely are gonna check your credit score to see if you're going to pay your bills on time. If they don't have a comfort level with your lack of credit history or lack of credit score, you will usually end up paying a much higher deposit.

To get your service turned on a higher deposit means more cash out of pocket that you may not have readily available. A lot of insurance companies will even check your credit score now. A good credit history, a [00:05:00] good credit score gives the insurance company confidence that you are not going to maybe commit insurance fraud or something like that. That one goes a little bit beyond just paying the bill on time and that you being someone that is responsible in their eyes.

Summary: Advantages of Your Child Having Good Credit
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So as you can see, getting a young person started on the right foot with a good credit history and a good credit score right off the bat will help them be able to get rental properties, utility services, all of these kind of things, and then keep building on that to when they're ready to apply for a mortgage, so that credit score does not mean you're staying in debt forever.

That credit score does not mean you're going to take on more debt than you need, or you, you should, but that credit score will help you be able to get things done easier and often for cheaper. So that's kind of the name of the game. If you're getting some of these things done cheaper, it frees up money in a young [00:06:00] person's budget to be saving at a young age.

Benefits For Adults
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And these principles don't just apply to young people either, right? So even someone that's maybe in their thirties or forties following these principles of having a, a good credit score and maintaining your good credit score in case you move or somewhere like that, and you've got to start service with a new utility company, anything like that.

A lot more people are renting these days than buying, and again, you might need that credit score if you apply for a new rental property. So just because you have a credit score and you stay on top of it does not mean you're going into excessive debt because that's not a good thing either, but having that good credit score helps with getting, um, service extended to you like in the way of utilities. It helps keep deposits down and it helps puts you at the top of that applicant list in some rental properties because it gives the landlord assurance that you are [00:07:00] going to be a good tenant.

Conclusion
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So use these tips and these principles for your children, other young people you may know to help them build a good credit history, a good credit score to get them started on the right foot financially. It doesn't mean they're gonna take on excessive debt, and it doesn't mean they love debt. It just means that they want to be responsible and have, an easy process of getting utilities, insurance quotes, rental properties, and then when they do apply for that mortgage, they are set.

Outro
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