In her article this month VICTORIA COSTER, the CEO of Credit FIX Solutions and Credit FIX Lawyers provides tips parents can use to teach their teenagers about maintaining a good credit score. It’s an important topic because the future financial independence for our children relies on them having a good credit score.
Being a parent of 2 teenagers, I regularly talk to them about finance, and they hear me talking about credit reports all the time, so they have a great understanding of finance, credit reporting, and how enquiries etc. can affect them when they get older.
But how many teenagers know much, if anything, about credit reporting or about credit in general?
Here are some handy pointers that may help you have these discussions with your teenager and prevent them from doing early damage to their credit.
What is a credit report?
Your credit report contains information about your credit history. The information is collected from credit providers, courts, and other organisations by credit reporting agencies.
Main areas of your credit report are listed below, or maybe you can get your free credit report and go through the report with your teen as a handy visual aid.
You can get your free Equifax report at www.mycreditfile.com.au
- Personal Details
- Joint Applicant
- Credit Cards
- Arrears brought up to date
- Defaults and other credit infringements
- Credit applications
- Debt Agreements
- Credit Liability Information
- Repayment History
- Commercial Credit Applications
- Report Requests
Credit Reporting and Finance
Explaining to your teenagers about enquiring for finance will help them to prevent any early damage to their credit reports.
Do you have a teenager who might be moving out to share an apartment with other uni friends?
It is important that you speak to them about the types of enquiries they might make, how this works and how it could affect their credit reports.
For example, maybe your soon to be Uni student is going to put the electricity account in their name.
They will need to understand that if the other students in the household don’t pay, that it will be your child who will be responsible for the debt, and will be the one affected by any late payments (e.g. a default).
Also, many of us move around a lot when we are younger.
Make sure that your teenager understands that if they move, they need to close all accounts for that rental, Foxtel, gas, electricity and make sure they give their forwarding address to the provider and make sure any final bills are paid.
Another area where we see a lot of damage to young people’s reports is with the pay day type lender finance.
Layby used to be a favourite of mine, and many of these ‘pay us in instalments’ offers at shops can look like Layby, but they are an application for finance.
Talk to your teenagers about having a savings account and saving to purchase the new shoes etc that they want.
Remember to explain the difference between good credit and bad credit.
A mortgage is deemed a good credit application whereas 10 Zippay applications aren’t going to have a positive effect on their credit report and credit score.
Lastly, don’t forget to talk about mobile phone accounts and applying online for finance.
My younger brothers’ friend (this is many years ago now) went online and applied 100 times for a personal loan in a weekend! Of course, 2 years later, his then fiancé had to put their home loan application in her name only because of the number of enquiries he had done!
Try to think of stories to tell your teenager that relate to helping them understand credit and their credit report. I find that our kids tend to relate better to stories, even if they are slightly funny like the one I just used above.
What is a Credit Score?
- Your credit score is a number based on an analysis of your credit report, at a particular point in time, that helps a lender determine your credit worthiness.
- Scores Range from 0 to 1200.
- It is used by credit providers, such as banks and credit unions, to help them decide whether to lend you money, how much they will lend you and may sometimes influence what interest rate is offered to you.
Your teenager may NOT have a credit score if they haven‘t applied for anything yet, but it’s important that they understand the concept at least.
How to Improve Your Credit Score
Here’s a handy image you can use to talk to your teenagers about keeping and/or improving a great credit score once they are actively applying for finance.
Understanding this information will help them to proactively protect their credit report in the future.
The 3 Credit Reporting Bodies in Australia
In Australia, we have 3 credit reporting bureaus (CRBs).
When your teenager applies for credit, the credit provider can lodge an enquiry or check out 1 or 2 or all 3 credit reports.
Once they are looking to buy their first car, or get a credit card, they should get a free copy of each of the 3 reports before applying for finance.
Hopefully you have found this information useful. Wishing you all the best with development of your children – their life skills and financial futures!
Disclaimer – This article is for information purposes only and is not financial product or investment advice or a recommendation to use Credit Fix Solutions and has been prepared without considering the objectives, financial situation or needs of individuals. Before making an investment decision, a prospective investor should consider the appropriateness of the information having regard to their own objectives, financial situation and needs and seek legal and taxation advice appropriate to their jurisdiction. Credit Fix Solutions is not licensed to provide financial product advice or legal advice to you, your affiliates, or your clients.