Note: I’ve written on credit before in my articles and books, but here is another perspective on credit. Good credit can be important for reasons other than debt. Let’s look at this perspective.
A large chunk of college graduates enter the working world with debt. In fact, the average debt at graduation is $25,921. Data also reveals that 77 percent of households in the United States have debt. Those odds combined with the fact that schools don’t really prioritize teaching students financial literacy make it more important for parents to teach children about the importance of good credit.
There are many factors to consider, but there are a number of great lessons you can instill in your children to help set them up for a life of financial health.
1. Good Credit is Essential for Building Independence
In order to enable your kids to live independently, it’s important to give them the proper resources to do so. Many of the essential financial agencies, endeavors, and assets that your child will want to look into will require good credit. Consider their first apartment, buying their first major appliances and pieces of furniture, and getting credit cards and bank accounts.
Let your child know the impact of their score and financial choices on their initial steps in making it on their own, and it will likely give them a better grasp of how important it is to take heed to the right lessons on credit.
2. Credit Checks Are an Impactful Part of Life
Teaching your children different types of credit checks will be one of the most useful things they can carry forward. Plenty of people don’t know the impact of hard credit checks compared to soft credit checks. It’s a good idea to discuss how hard credit checks are required for loans and mortgages, that they stay on one’s credit report for over two years, and that each inquiry temporarily lowers your credit score.
Your kids simply need to remember that they should not take on too many hard credit checks within a short period. It’s also good to teach them how soft credit checks can be done without their knowledge in certain contexts.
3. Those Who Use Saving Systems Can Achieve Greatness
It’s best to prioritize systems over goals, as this gives your children a clear way to hit their financial goals and actually have a way of maintaining good practices. By teaching them to create systems for saving, it will be easier to keep up a good credit score.
It’s a simple thing. With the proper behavioral tools and systems to fall back on, your children are more likely to achieve their goals and succeed.
4. Lower Interest Rates Are Great for Loans and Investments
When you have a high credit score, you are more likely to get lower interest rates. Considering the fact that interest rates have hit their highest levels in over a decade, you want to have the best possible odds in your favor.
Discuss any future loans and investments your child may want to pursue as they grow, and teach them how much of a big help it is in their overall expenses to get the lowest possible interest rates as possible.
5. Good Credit Helps You Get Rid of Debt
Because good credit grants more access to financial options, it will help your child to get rid of their debt to continue building on good credit. When it comes down to financing and getting lines of credit, lenders are more privy to providing good deals to those with better credit scores.
Teach your kids the essential steps in building good credit, such as paying bills on time, being smart with credit card usage, consistently checking reports for anomalies and errors, and making sure not to hit credit limits.
6. More Opportunities Can Come Your Way
Many employers actually pull soft credit checks as part of their screening process for potential hires. Different states have their own regulations regarding how this works. Certain states restrict the use of credit checks in screening employees while some require employers to inform the candidate. The majority of employers are legally allowed to request a credit report to assess you, though.
An essential lesson is to make good financial choices that will look good when skimmed by HR. Employers can also see details from financial history and not the actual credit score, so they will need to make choices and payments that can speak for themselves to show how good their financial standing and character are.
7. Maintaining Good Credit Helps Instill Other Responsible Behaviors
Keeping up your credit can also trickle down to other aspects of life. Including other concepts for behavior in their lifestyle can help them with productivity, creativity, and goal setting.
Consider the Pareto Principle and Parkinson’s Law, which can guide them to focus on what really matters and minimize procrastination. It works for both maintaining a good credit score and being efficient in their work and recreational endeavors.
8. The Earlier You Work on Your Credit, the More Access You Have to Housing Options
Finally, you want to teach your children how important it is to work on building good credit as soon as they can if they want to have more access to good housing options. The housing process starts out with looking for a decent place to rent but eventually grows to getting a mortgage for their own property.
For a picture of the state of things, only four in seven Americans know how to handle their money. Setting your kids up for financial literacy at a young age is a huge step in ensuring they will get the assets they need in later life. Give them accessible books to read, teach them discipline in a manageable way, and lead by example.
