In general, the sooner you start having money conversations with your kids, the better. And the good news is, the majority of American parents are having those talks: Over half, or 56 percent, according to Chase Slate's 2018 credit outlook survey.
But most parents are skipping over a key money term, the survey finds: Only 32 percent of parents have explained what a credit score is.
Your credit score, which is represented as a number between 300 and 850, is a crucial component of your financial health. The better your score, the more likely you are to get a good deal on a home, car or other loan.
But 25 percent of millennials don't know what a credit score is and results of surveys and money IQ tests both show that there's a lot of confusion around the topic.
As part of a six-question money quiz, personal finance site GOBankingRates stumped more than half of its 2,000 respondents with this question about credit: "True of false: Income does not impact your credit score."
The answer is "True," since your income does not directly affect your credit score. Only 40 percent of respondents got it right.
Here are the five factors that do affect your FICO credit score, the most popular scoring system out there:
- Payment history (35 percent): Your repayment of past debt, whether it be credit card debt or a mortgage, is the most important factor because it helps determine how you'll handle future payments. You want to make consistent, on-time payments to improve your credit or maintain a good score.
- Amounts owed (30 percent): This category is credit utilization, which is the ratio of how much you've spent on your credit card versus the card's limit. Ideally, you want to use under 30 percent of your available credit.
- Length of credit history (15 percent): How long you've had an account open and the time since your most recent transaction also affects your score. Newer credit users may have a harder time getting a high score since there's less data available on payment history.
- Credit mix (10 percent): Your score considers the types of credit you use, like credit cards, retail accounts, installment loans and mortgage loans.
- New credit (10 percent): Opening up new credit cards, especially at all once and if your history isn't established, can count against you. Too many hard inquiries, such as those that occur when you're applying for an apartment or signing up for a new card, can affect your score, while soft inquiries, such as background checks, do not.
Besides credit score, read up on other important money concepts and habits to teach your kids.
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