Your teenagers may just be getting their feet wet when it comes to finances. But it’s important to take a quick look at the financial world they’ll be stepping into.
Today, total household debt in America has increased by $185 billion, to hit $18.39 trillion, according to the latest data by the Federal Reserve Bank of New York. And the average American household is more than $150,000 in debt.
For teens, being in immense debt can deliver a massive blow to their credit. This could trigger devastating consequences down the road. A bad credit score could affect their ability to rent an apartment, take out a mortgage or loan, and even land a job.
But your teen doesn’t need to become another statistic. There are plenty of steps you can take right now to make sure they build good credit and steer clear from crippling debt. So let’s take a closer look.
Help Them Understand How Credit Works
Only a handful of states require that high schools offer a personal finance course. And in these states, more than half (68.8 percent) only have access to an elective course or embedded instruction, according to research by Next Gen Personal Finance, a resource for teachers.
So don’t rely on school to teach your kid about building good credit. You’ll need to lead the charge.
You can begin by explaining credit scores to your teens. Credit scores range from 300 to 850. What these scores tell you depends on the mathematical model used—typically FICO or VantageScore. But in general, this is how they break down:
- Poor: below 580
- Fair: 580–669
- Good: 670–739
- Very Good: 740–799
- Exceptional: 800–850
The three major credit bureaus Experian, Equifax, and TransUnion use your credit activity to determine your credit score.
The two most important factors that go into calculating your credit score are payment history and credit utilization. The latter basically means how much of your balance you are using.
Teach your kids that the best move to make is to never charge more than you can pay back and to always pay back in full each billing cycle.
Here’s a deeper look into what goes into determining your credit score and approximately how much these factors account for.
Payment history (35 percent): Make sure your teen makes at least their minimum payments each month. But it’s best to pay back the entire balance each month if possible. Avoiding late payments and collections is crucial to maintaining a good credit score.
Credit utilization, or amounts owed (30 percent): This is the ratio of the amount of debt you owe to your total available credit. Experts recommend maintaining this ratio under 30 percent.
Length of credit history (15 percent): As a general rule of thumb, the longer you have had credit accounts open, the better.
Credit mix (10 percent): Having a blend of different credit types like personal loans, credit cards, and mortgages can slightly help.
New credit (10 percent): Applying for new credit within short amounts of time can be seen as a red flag for the credit bureaus and could negatively impact your credit score.
If you have good credit, show your teens how you keep that score. Show them your history of timely payments and how you live within your means to keep your high credit score. Show them credit cards should be used for necessities and emergencies.
Explain to them that a credit card is basically a high-interest loan. The credit limit is not money you earned. It’s money borrowed that you need to pay back regardless of what you used it on.
Moreover, show them that a credit card is not a debit card. With that said, help them get their first debit card.
Open a Joint Checking Account
Before your teens get their first credit cards, they can practice managing finances with checking accounts.
If your teen is under the age of 18, you’d need to open a joint checking account. This means you can both make purchases using the debit cards linked to the joint account. But you’d also absorb any fees.
This is why it’s important to shop around for accounts. The best banks and credit unions—including online institutions—offer checking accounts with no maintenance fees and minimum balance requirements. Some even pay interest. And some options allow you to place spending limits. This can be a great feature for parents as they monitor their teens’ spending habits. The account itself—which you shouldn’t use for your own purchases—can help your teen manage and track spending. It can help them build a budget around what they earn and have at their disposal.
With that said, it’s important to weigh the pros and cons of any available overdraft feature. If your teen spends more than they have on their debit cards, some banks have overdraft protection that allows the institution to cover the excess purchase. Of course, your teen would need to pay it back along with potentially high fees. This is why it may be a good idea to opt-out of overdraft features. This would allow your teen to only use the money they have. This could help them have a healthier view of what a credit limit really means on a credit card when they’re ready.
Sign Them Up as Authorized Users
Your teen must be at least 18 years old to open a credit card account. But some credit card companies allow you to set up a minor as an authorized user on your own credit card.
If you have good credit, consider adding your teen as an authorized user on your credit card, preferably one with a low credit limit. This would allow your teen to make purchases, but avoid the responsibility of making payments.
This could also allow your teen to “piggyback” off your good credit behavior, because the credit card companies would report factors like your timely payments and low credit utilization to the credit bureaus in your teen’s name. But check with the company to make sure that they actually do report authorized user account activity to the credit bureaus.
And since your teen will have the ability to legally make purchases using your credit card, be sure to have a serious discussion about what they are allowed to use that card on. It may help to even have them pay part of the bill each month.
Consider a Secured Credit Card
If your teen is at least 18 years old, they can open a secured credit card. And if they’re under the age of 21, they’d need to provide proof of income. Still, secured credit cards are generally easier to qualify for than traditional credit cards. And it could serve as a sort of credit card for training purposes.
Here’s how it works.
Your teen would make a deposit, which typically serves as the credit limit for the secured credit card. From there, your teen uses the card to make purchases and is responsible for making timely payments. So it’s kind of like paying yourself back. But the timely payments would be reported to the credit bureaus and form a foundation for good credit. However, if your teen defaults or stops making payments, the card issuer can use the money in the account to cover what’s owed.
The Bottom Line
It’s important to help your kids understand and build good credit as early as possible. You can begin by explaining the basics of credit scores and how they are calculated. Explain the major factors that go into building and maintaining a good credit score like making timely payments and not using much of your credit limit. Allow them to manage their own finances and track their spending using their own checking accounts.
If you have good credit, sign them up as authorized users so they could benefit from your good credit behavior. Before launching into signing up for a credit card at 18, it may help to start off with a secured credit card. But ultimately, it’s up to you to help your child start building credit. Help them develop good money habits early on. This will help them establish good credit habits and put them on a bright path toward financial wellness.
The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
