A Parent’s Guide to Helping a Teen Build Good Credit

Wheat field with indistinct farmhouse in background

Written By: Leah Chester-Davis & Carrie Barnhardt

We’ve all heard the horror stories about how an 18-year-old gets tempted by loads of credit card offers, applies for numerous cards and receives them, and before they know it have swiped those cards too many times and racked up a mountain of debt with high interest charges.

It’s the reason some financial gurus recommend staying away from credit cards. However, if used responsibly and wisely, they can be an important tool in building good credit along with a credit history, says Loan Officer Carrie Barnhardt in the Concord Branch of Carolina Farm Credit.

For older teens and young adults who wish one day to purchase a car, their first home, or even farm-related items such as property, cattle, or equipment, some guidance and simple lessons in financial management can go a long way to helping them get on the right financial path in life. It can increase their chances later on of being successful in securing loans at the best possible interest rate.

“If you know how to use credit cards and realize the responsibility around them they can work in your favor,” says Barnhardt. “If you have an immature teenager or young adult who doesn’t know how to manage them, it’s key to prevent them from going into a snowball debt spiral by teaching them good habits.”

One tool that Barnhardt started out with when she was in her college years and now recommends to others is what she calls a credit card with training wheels. “Many banks offer what is like a trial credit card,” she says. “It’s like Mom and Dad helping you.”

If you are 18 or older you can take $500 or $1000 of your own money and put into a separate bank account. The bank provides you with a credit card. These are often called secured credit cards; make sure to inquire with your bank to set up the right type of account. The key is to track your expenditures, not overspend, and make your payments on time every month. However, if you fail to make a payment, the bank will pay on your behalf out of your account and it will not ruin your credit score. “It’s a safety net,” explains Barnhardt.

It’s a good way for young adults to learn good habits when it comes to using credit. It can help put them on the path to good credit scores and a good credit history, which will be important when it comes to a number of large purchases they may need to make in adulthood. A secured credit card may also be a helpful option for those who’ve had a setback and need to rebuild credit.