When my nephew was heading off to college a couple years ago, we had a quick talk about credit. I wanted to help him avoid some of the mistakes I made as a young adult because I didn’t realize then the time and care it takes to build good credit, and how quickly it can erode.
I told him about a simple way to establish credit and a good credit score: Get a credit card, use it to buy something small each month – laundry soap or dinner out with friends – and set up an automatic payment with his checking account to pay the total off every month.
This is a simple way to establish good credit, I told him, so that when it’s time to buy your first car or even your first house, you can get a loan and more favorable terms than someone who hasn’t managed their credit responsibly.
This month, we’re trying to spark those kinds of conversations all over America through our participation in the American Bankers Association’s Get Smart About Credit Day (Oct. 15, 2015) and our annual “How America Buys and Borrows” survey — an annual pulse of consumer attitudes about credit.
For some of us, talking about credit can be about as much fun as a trip to the dentist. It can be a difficult conversation to have, especially if you’re trying to help a loved one.
In fact, in this year’s How America Buys and Borrows survey, 61 percent of respondents said they’d rather share their weight on social media than share their credit score! Clearly, this is a sensitive topic.
But it’s also one that needs attention. Fifty-seven percent of millennials in that same survey told us they’ve lost sleep thinking about their credit situation.
So how can you break the ice? I always share these four tips with parents and others wondering how to help kids establish credit:
- Start early. Don’t wait. Have conversations about establishing and building good credit as soon as the kids show an interest and are old enough to understand financial concepts.
- Check back in. Like many things in life, this isn’t a one-and-done conversation. When kids get that first credit card or take out a student loan, check back to see how they’re doing with payments.
- Be a role model. Do you check your own credit report annually? Create a budget and live by it? Share your own credit and budget-management tips so kids can learn from your example.
- Know that every conversation counts. Establishing and building good credit takes time. Every conversation you have helps identify ways to develop habits that build long-term financial health.
Today, my nephew has outstanding credit and when he’s ready to take on more financial responsibility by buying a car or his first home, he’ll have no problem getting the financing he needs.
More importantly, he has a healthy understanding of why it is so vital to manage his credit well.
I texted him recently to ask him what his credit score is, and he didn’t hesitate to respond. He texted back immediately and added, “Hooray for good credit!”
For more information and tools about ways to establish or improve credit – or better manage debt – visit Wells Fargo’s Smarter Credit™ Center and our free financial education program, Hands on Banking®.
Freeman leads Wells Fargo’s Consumer Credit Solutions team, which includes management of the company’s credit card, personal lines and loans, direct auto, retail services, student lending and other businesses.