To be credit smart means using all kinds of credits such as credit cards or personal loans responsibly. With financial institutions becoming more and more stringent with their loan approval procedures, it has become really important to pay attention to your credit report today.
If you are a parent then you can make the lives of your children much easier by inculcating good credit management habits in them. If they are responsible with their credit usage they can prevent CIBIL disputes, have a good CIBIL score, and even avoid having their name added to a loan defaulter list in the future.
The following are some of the things you can do to make your children credit wise:
Making them an Authorized User
One of the most effective ways to help your children become credit smart is to make them an authorized user of your credit card. Not only is this method the simplest, it is also the safest.
By making your children authorized credit card users you can allow them to make purchases that will be billed on your credit card. While they will get their own credit cards separately, the bills have to be paid by you unless they are paying themselves.
Choosing the “authorized user” option rather than getting your children their own separate credit cards is a safe way to teach them how to be responsible. This is because you can easily check their purchase activities from your own account, and they can be made accountable for the purchases they make. The only drawback in this arrangement is that if you are not able to handle the debt/bills then it can have an adverse effect on the credit reports on the children.
Getting them an Actual Credit Card
If your children are above 18 years of age and good with money, then it may be a good idea to get them actual credit cards. In comparison to supplementary credit cards this option has a “high risk-high reward” structure. Since the cards will be issued under their names, they can face serious repercussions such as being added to CIBIL defaulters list, etc. if they are not able to pay their bills on time or are not able to improve cibil score enough. However, financial activities on an actual credit card have a higher impact on the credit report, which means that they can increase credit score much faster than using a supplementary card. Another benefit of an actual credit card is that they can get hands-on experience with the real deal. Thus, they will take it more seriously, and also get to learn about the rules and regulations governing the cards.
Getting your children supplementary credit cards or actual credit cards is one of the biggest steps in making them credit wise. However, your job as a parent doesn’t end there. You must also educate them on good credit building habits which can help them in the future. These are:
- Taking EMI and Credit Card Bill Payments Seriously: The young are often careless and irresponsible. The habit of procrastinating, which is often seen when they have to study for exams can also be seen in the way they handle bills and EMI payments. However, the same can be detrimental to their credit score, and it’s your job to make them aware of that.
- Using Credit in Moderation: The charm of a credit card has the potential to cloud the judgment of your children. They can easily end up shopping excessively with their credit cards. However, not only this kind of behavior leads to unnecessary purchases, it can also damage their credit score. Thus, they must use their credit cards only when it is absolutely necessary, on in an event when it is a convenient option (such as paying for books purchased online, or paying the school/college fees, etc.).
Every parent wants their children to live a comfortable and successful life, and you can do your bit for them by making them credit-ready and credit-responsible. This way they will never have to struggle for getting a higher education loan, land mortgage loan, etc. in the future.