Not every young adult in the U.S. has the safety net of generational wealth, but anyone can learn how to manage their personal finances.
That's the philosophy of Evan Leaphart, founder of the children's financial literacy app Kiddie Kredit.
In his early 20s, Leaphart failed an employer's credit check because of missed payments on his credit report, and it took years to regain those lost earnings and repair his credit score. Many young adults make similar mistakes when they first start using a credit card, but Leaphart wasn't expecting his to disqualify him from what seemed like his dream job.
Now in his 30s, Leaphart designed and launched Kiddie Kredit because he wants to give young people the head start he didn't have.
The free Kiddie Kredit mobile app gives kids points for completing chores around the house, and they are then rewarded with both monetary and non-monetary prizes after meeting a goal. (The choice of prize is up to parents.)
Kiddie Kredit's points system parallels the FICO model, the favored credit scoring model among lenders. The company recently partnered with the Equifax Foundation, the philanthropic arm of the credit bureau Equifax, to educate more kids about how credit works through its Greater Atlanta Builds Credit and St. Louis Builds Credit initiatives.
Though Leaphart has improved his credit score, he maintains that the mistakes he made in his 20s were, in part, because he never learned personal finance basics in school. Only 21 U.S. states require high school students to take a financial literacy course, and many young consumers are unaware of how FICO scores work or what's included on your credit report.
"Having good credit really levels the playing field," Leaphart tells Select. "One of the biggest things we can do to change the inequalities we see in our country is teach people about economics."
Because Leaphart now has good credit, he was able to qualify for business loans for his start-up. This is essential, he argues, for any entrepreneur without some kind of financial safety net, such as a large emergency fund or family money.
"A kid in West Baltimore isn't necessarily going to have friends and family money," says Leaphart. "But if that kid has a good credit score, they can get the funding they need to start a business."
For young adult consumers, or anyone who is still learning personal finance basics, a good first step is to pull your credit report for free from each of the three major credit bureaus — Experian, Equifax and TransUnion — by going to AnnualCreditReport.com.
You can also check your score for free through services like CreditWise® from Capital One and *Experian Boost™. Once you have a picture of your credit history, it's really important to understand what affects your credit score so you can improve it as Leaphart did.
"You don't have to start from the perfect situation," he says. By consistently making on-time payments, spending within your means, limiting new account openings and keeping your accounts in good standing, your score can significantly improve.
"One thing I did that really helped me out was get a secured credit card," says Leaphart. "It was pretty much the only thing I could get. I put Netflix on it, and put it on autopay." Once that was set up, he didn't really give the card or his score a second thought.
A secured credit card typically requires a small deposit, around $200, which then becomes your credit limit. The Capital One Platinum Secured Credit Card (see rates and fees) is known for security deposits starting at $49 to get a $200 limit (based on your credit score). The Citi® Secured Mastercard® is another good option.
Secured cards aren't known for their bells and whistles like rewards cards are, but they can make a big difference when you're trying to improve your score, as Leaphart learned firsthand.
"I checked two years later and saw my score went up 175 points," says Leaphart. "That was the first time in my life I took credit seriously and understood how it worked. That's what led me to start Kiddie Kredit."
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*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
