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It's never really too early to start talking with your kids about the importance of being careful with your money and establishing good credit habits. It's crucial for young adults to establish their credit history early, so they can access better insurance rates, enjoy a smoother experience renting an apartment and, eventually, have an easier time applying for mortgages and other types of loans.
The minimum age to get a credit card is 18, but there's a lot that parents can do to help their children prepare for this milestone. Select spoke to three financial experts who shared their best tips on how to help your child build credit and use credit wisely.
If your child is already a young adult who is ready to start building credit with a credit card, there are a few simple tricks you can teach them about maintaining excellent credit: always pay your bill on time, spend below your means and don't open more accounts than you can comfortably manage. But the best behaviors actually result from an early education, not only knowing how the credit game works.
Research shows that children start developing their behaviors around money as early as age three — and they are nearly solidified by age seven.
Developing good money habits can be as simple as giving young children household chores to help them understand the concept of earning money, Tim Sheehan, CEO & co-founder of Greenlight (and a dad), tells Select.
You can also use stories to teach your kids about good money habits, like the children's book "The Four Money Bears," by CFP Mac Gardner. In Gardner's book, one of the characters, appropriately named Spender Bear, runs into trouble when he buys only what he wants. He must work with the other bears to create a budget that includes saving, investing and donating money as well.
"Spender Bear is high on life until he overspends and loses everything," Gardner explains.
Presenting these kinds of problems during story time is a lot easier than telling your children "no" at the checkout, and it might make them invested in solving the problems of characters they come to love.
When your child is young, they will observe you swiping your card at the checkout, and they will easily make the connection that a card is a lot like cash.
But while a debit card is cash in essence, a credit card is borrowed money. So well before your child starts using their own debit card, they should understand the difference.
"Having a debit card does not help build credit," Sheehan explains, "but the habits formed from responsible debit card usage translates to more complex topics like credit cards and borrowing."
Rewarding your kids for chores is more effective when you incentivize saving, according to Sheehan, who developed the Greenlight app to help parents teach their children how to responsibly use a debit card (which translates to responsible credit card use later, says Sheehan).
"With the Greenlight app, you can set up weekly chores and tie that to a weekly or monthly allowance," explains Sheehan.
But there is also a parent-paid interest program that rewards kids for putting their money in savings by letting parents send interest disbursements from their checking accounts.
Collectively, the roughly 1 million parents and kids who use Greenlight have put about $25 million in savings, or roughly $25 per kid on average. But the parents who use the app's parent-paid interest feature see their kids saving more, and the kids are currently earning an average of 18% APY from their parents' "bank," Sheehan says.
As the kids grow up, they will learn that interest can be earned, but also charged when you borrow money from lenders.
If your teenager is interested in opening their first credit card at 18, you might want to encourage them to save up the deposit required to open a secured credit card. In some cases, if you have a savings account at a bank or credit union, you can borrow against that account to open a secured card.
For example, if your teen opens a savings account at the Digital Federal Credit Union (DCU), they could save toward a deposit on a DCU Visa® Platinum Secured Credit Card.
On DCU's website, it states:
"If you are looking to establish or improve your credit history, this credit card is a great way to get started. By allowing you to borrow against your DCU savings account, this card gives you all the benefits of DCU's Visa Platinum Credit Card."
Benefits include no cash advance fee and optional overdraft protection that lets users link a credit card account as a backup to their DCU checking account to avoid overdraft fees.
Rod Griffin, director of public education and advocacy for the credit bureau Experian, tells CNBC Select that this strategy accomplishes two things: teaches teenagers credit card basics and establishes good savings habits.
"They understand that if they fail to pay their credit card bill, their savings account is going to be taken away and they are going to get a ding in their credit score," Griffin explains. But if they do it right, they can continue to grow their savings while also building good credit.
If you're not interested in joining a credit union, you could recommend your child apply for the Capital One Platinum Secured Credit Card. It stands out because Capital One will review cardholders' accounts periodically to give qualified borrowers access to more credit and to eventually upgrade them to a unsecured card.
Learn more: What does it mean to be credit invisible?
"Helping a 16- or 17-year-old get a used car loan can be a good way to build credit," Griffin tells CNBC Select.
While this strategy may come with some risks to your personal credit score, if you believe your teen is trustworthy enough to make the payments on a car loan, it can be a great way for them to establish credit without opening a credit card.
They might also need a little help getting approved for their first apartment lease, and you can be a co-signer to get them started. In some cases, they can ask their landlord or property manager to report their rent payments with Experian RentBureau to help raise their credit score.
An auto loan, student loan or other kind of installment loan could help add to your child's credit mix, which makes up 10% of their credit score, but you will need to understand whether the laws in your state allow children under 18 to co-sign a loan, as well as when each loan will show up on a credit report. In most cases, you can ask your lender these questions in detail.
It can be tough for a young adult to establish credit, since 15% of a person's credit score has to do with the length of time they've been a borrower and their overall financial history.
But there is a rather new solution to this. Once they turn 18, your child can open a cell phone, internet or utility account in their name and sign up to have their payments reported to the credit bureaus.
With services like Experian Boost, they can grant the bureaus access to their "telecom and utility bills," says Griffin. This is a broad term for internet, cable and cell phone accounts, and utility accounts such as gas, electric and water.
Once a person agrees to the service, all of their payment history, reaching as far back as two years from the time of signup, will be added to their credit report.
In the past, utility and cable companies only reported to the bureaus once an account fell into delinquency, explains Griffin. But now, positive on-time payments can count toward building their credit. And in most cases, it helps.
"The people who do rent reporting through Experian see their credit scores increase, or they become scoreable for the first time," Griffin tells CNBC Select.
Adding your child as an authorized user is a great way to help them build credit, and in some cases your child only needs to be 13 to 15 years old to qualify (read about the minimum ages for each card issuer).
Before you add your child to your card, call your card issuer to confirm that their activity will be reported to the credit bureaus (most major issuers do). Otherwise, it will have no benefit to helping them establish a credit history.
Once they are on your account as an authorized user, they can use your card independently for purchases online and while they are out and about.
But don't let the learning stop there; Griffin encourages parents to sit down with their teenage children to go over what a credit card statement is so they understand what responsible card use entails.
"At the end of the month, walk them through the billing statement and talk about what it means to repay, what happens if you carry a balance and pay interest, what the future consequences are if you don't pay that bill and it impacts your credit," he encourages.
"It can be hard because money is such an emotional topic," says Griffin. But since adding an authorized user comes at some risk to your own credit score, it is important that you trust your child's ability to handle the responsibility and agree on spending uses and limits.
For many people, a student credit card is the first credit card they open. That's because most student cards give college students enrolled in a two- or four-year college the chance to build credit. Some even let them earn rewards and receive student-centric benefits.
Your teen must be over 18 and have a proven source of income to apply for a student credit card, and most require that the student is also a U.S. citizen (though some are available to international students).
The Discover it® Student chrome has a strong rewards program for college students frequently filling up their gas tank or dining out, with 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, then 1%. Plus, earn unlimited 1% cash back on all other purchases automatically.
"The world can be unforgiving, and we don't want kids to get into tremendous trouble one day," Sheehan tells Select. It is important to start early when teaching your children about credit cards and incentivize good behavior that will help them build credit when they are ready.
Good values start early, and in many cases they are solidified before your child is even old enough to drive.
But experts agree — it's better that your kids make mistakes as children and teenagers than when they are adults with higher expenses, and potentially even families of their own to support.
Learn more: How to protect your child from identity theft
Information about the Capital One Platinum Secured Credit Card and DCU Visa® Platinum Secured Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer of the cards prior to publication.
For rates and fees of the Discover it® Student chrome, click here.