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HOW CAN PARENTS HELP THEIR KIDS BUILD CREDIT AT A YOUNG AGE

In the day and age that we live in today credit scores have a
great influence on our financial future and that is why many
parents nowadays are not only worried about their child’s health
and safety but also about how their kids can build a good
credit.
How soon should one start to build credit? The answer is that
the teenage years are the best time to start building a credit
history. This means that parents will have to take the lead in
explaining the basics of saving, earning and spending before
their kids become teenagers.
Follow these 5 steps and by the time your kids are flying solo,
they should be well on the way to a good credit score.

1. Help your child open savings and checking accounts:

A savings account is the basic building block to help children
understand the financial world. Parents should encourage kids to
deposit birthday money, allowances and cash from any odd jobs
they go into this account and also save up for something they
want to buy. This will help them to learn firsthand as to how
compound interest works.
When your kids are in the early teens help them open a checking
account and teach them how it works and about penalties if they
overdraw or if their checks bounce. This will not only limit them
to their checking account balance but also give them some

spending independence. It will also help show financial
institutions that your teen can handle money.

2. Encourage your teen to get a part- time job:

Working part-time will not only help teach children the value
of money but will also definitely go a long way in making your
child a responsible adult. The thrill of seeing savings grow and
the disappointment of watching money disappear when they
make bad decisions will be a precursor to understanding credit.

3. Make your child an authorized user of your credit card :

The most conventional way that people start building credit is by
taking on a credit card or loan, but one has to be at least 18 to
do this. However, you can build your child’s credit even before
the age of 18 by making your child an authorized user on your
credit card. The credit card company will issue a second card in
the child’s name. The child can use this card as a card of his
own but the only difference is that the primary holder (parent) is
responsible for the entire balance.

4. Co-signing a loan or credit card:

If you think that it is not a good idea to make your teen an
authorized user on your card, you can co-sign his or her first
credit card. This will pack more punch than authorized user-
ship as your child will be the primary borrower and it will do
more to help your child build a solid credit score. But
remember to educate your child how to use the card responsibly.
You should be comfortable with this possibility before moving
forward.

5. Obtain a secured credit card:

If you feel your child is not particularly responsible with money,
the best option is to help your child apply for a secured card
when he/she is 18 years old. These cards are normally fully
secured and require cardholders to deposit a few hundred dollars
which is usually equal to the credit limit. You can make the
initial deposit together. The advantage of such a card is that your
economic risk is just the amount of deposit and some credit
cards come with some additional attractive features like a
reasonable annual fee of about $29 which allow kids to monitor
their credit scores and use a credit simulator to see what the
consequences will be if they missed a payment or continue to
pay on time over an extended period of time.

If your child uses the credit card regularly for small purchases
and pays off the balances in time he/she can qualify for an
unsecured credit card after six months.

Building up a solid credit score will help your child qualify for
loans, auto insurance and even affect whether he/she can get a
job. Therefore, you should monitor your teen’s activities as
she/he gets into the credit habit and allow more flexibility as
responsibility is demonstrated.

Obtaining a reasonable of credit at an early age and using it
responsibly will definitely pay off in the long run. There are
tricks and techniques to build a good credit score a young age
but in the end, it boils down to being responsible.

Don’t Fall into Deferred Interest Credit Cards over the Holidays or You’ll Pay 27% More Interest.

 

America is a paradise for shoppers with a multitude of retail stores that offer foods, electronics, clothing and much more. The savvy shoppers often make a sport of looking for the best prices through sales, discounts offers, perks, interest-free deals and much more. 

Many shoppers may prefer to use store cards instead of their everyday Visa card for shopping as many stores have their own cards and offer better deals. The holiday season is fast approaching and retail credit cards can really save some money. It can also help counteract the ballooning effect that holiday gifts can have on their spending.

Are store credit cards a good deal?

When checking out at a retail store we often come across stores offering 12 months or more free financing, if you apply for their credit card that very day. Chances are that you will be hearing this a lot more often if you accelerate your holiday shopping.

 No doubt these financing offers are very tempting for holiday shoppers-and many take the bait-but are stores credit cards really a good deal? The answer is yes if it is used smartly.  But, before agreeing to apply for the store credit card there is one hidden trick you must be aware of otherwise your “free financing” can backfire in a very big way.  One common miss-step will end up in you paying 25% to 28% more interest on purchases you make.

According to WalletHub, “the trouble arises due to deferred interest”

The difference between 0% Intro APR Cards and deferred interest cards

If you want to make a large purchase with a store credit like a home appliance you may qualify for special financing. Store Credit cards that offer free financing are 0% Intro APR cards and deferred interest cards.

You might reasonably assume that they work the same way, but they are different. You get 0% APR which will allow you to pay back the purchase money with no interest for a specified period such as 12 or 18 months. With Introductory 0% APR you will not be charged interest during the promotional period and interest will start to accrue only on the remaining balance. But on the other hand, differed interest cards are particularly dangerous.  You will be charged interest not on the balance amount as in a 0% APR but interest will be charged on your entire purchase amount.

The Trouble with Deferred Interest  Credit Cards

This is a feature which is commonly found in the fine print of 0% store financing offer plans and particularly dangerous. It is like a wolf in sheep’s clothing as it pairs an enticing offer like “no interest if paid in full” or “special financing” with a clause that can turn sour. Many retailers do not disclose deferred interest clearly enough.  If you make even the slightest mistake of not paying back the entire amount by the end of the interest-free period it can lead to some expensive post-holiday shopping surprises.

With a deferred interest, finance offers you must pay off the entire amount in full before the promotional free financing period is over. If you do not do so then you will have to pay the full amount of interest charges as if the interest rate was effective the whole time. The moment the promotional period is over the “deferred” interest rates comes rolling back, not just the balance amount you owe but on the entire purchase amount.

Let us look at an example as to how much a deferred interest card can cost.

If you had 12 months to pay off a purchase of $1,500 and you had paid $540(minimum payment of $45 dollars per month) at the end of the financing period. The store will then charge you 12 months of interest on the balance which will be a walloping $321 in interest. In addition, you will still owe the $960 balance on your purchase. Whew!

This is by far the biggest negative that is associated with credit cards. The interest rates of biggest retail-branded credit cards are often sky-high, with a standard 24.99% to 27.99% APR. In comparison “the current average interest rate for all credit cards is 13.08% APR”, according to the Federal Reserve.

So before using a “deferred interest” store card you should plan to pay off the loan before the promotional period expires, as sometimes “unexpected things occur and you may not be able to make the payment every month”, says Bowne.

Avoiding getting surprised by the deferred interest

This is how you can take advantage of zero percent finance offers by considering the following precautions:

  • You should make sure you read the terms and conditions carefully to see if the card carries an annual fee, You should also know what the go-to APR will be once deferred-interest promotion period expires.
  • You can plan to have it paid off early by dividing the purchase price by 11 months instead of 12 months.
  • Pay your balances each month by setting up the payment on auto pay. In this way, you can boost your chances of paying it off in time.
  • You should avoid any extra trips to the store to avail of offers on “card member” sales and only purchase what you want.  

No doubt store credit cards offer you much better deals and discounts then typical cash back cards.  You can save loads of money if you are a frequent shopper. But just remember not to leave a balance because “deferred interest” will always destroy any savings and rewards the cards have offered. 

For more updates  call us at  our toll-free number(800) 400-ZINU(9468)