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Your 18th birthday — it's a milestone. In most states, you can start voting, join the military, go to college, and begin a career. It's also when you begin to make your own financial decisions and begin building your own credit history.
With these rights come responsibilities, and consequences. Most young adults don't realize that missing a few payments or going over their credit limit can damage their credit. This can result in higher interest rates, being turned down for future loans, or even being denied a job or apartment rental.
You want your teens to be ready. Here are some points you'll want to discuss with them as they begin to assert their financial independence:
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What is credit?
Basically, credit is where someone loans you money that you promise to pay back at a later date, under repayment terms to which you both agree.
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Credit history
There is always the risk that someone won't pay back their loan.
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Credit reports
Among the tools lenders use to assess your credit history are credit reports available from the three major credit bureaus:
Equifax, Experian and
TransUnion.
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Ordering credit reports
You can either order reports from each of the bureaus directly for a small fee, or get one free credit report per bureau, per year at
www.annualcreditreport.com.
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What is a credit score?
Credit bureaus use information in someone's credit report to create a three-digit credit score — typically ranging between 300 and 850.
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How to establish credit
Good credit is something you have to earn by demonstrating sound financial habits.
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Ways to build good credit
If you are new to credit, it will take time to establish a strong credit history and earn a high credit score.
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Future implications
Failure to manage credit responsibly can have an adverse effect on your credit for years to come.
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