Apr 8, 2019

Talking Credit Scores with Your Kids

A child and a woman smile as the lay on the ground using a laptop.


If you haven’t spoken to your kids about credit scores, then you’re not alone. A Chase Slate survey revealed that only 32% of parents explained credit scores to their children. It can be awkward, especially if you’ve made embarrassing credit mistakes in the past. But, talking about financial matters with your kids is crucial for them to understand how to handle credit.

Use these tips to lay the groundwork for a solid financial footing for your children before they leave home.

How to Prepare for the Talk

The earlier you start the conversation with your kids, the better. Don’t wait until they have begun using credit cards to talk about credit scores. Concerned you’re not the best example or role model? You don’t need a perfect credit score to teach your offspring about how to use credit responsibly. The proper use of credit products, e.g., loans, credit cards, etc., should be the main focus of the discussion.

Prepare for the talk by studying up on how credit scores are calculated. While not exact, it might help to start with a school report card analogy. There are similarities between a consumer’s credit score each month and a student’s school report card at the end of the term.

Factors Influencing Credit Scores                                        

Payment History

  • Credit Score = Paying your bills on time

    Similar to:

  • School Report Card = Turning your school work in on time

Credit Utilization

  • Credit Score = How much credit is being used compared to how much is available

    Similar to:

  • School Report Card = How effectively students spend their time, e.g., use it all up for social activities or keep those activities low in relation to their study time

Length of Credit History

  • Credit Score = Age of credit accounts, e.g., the older, the better

    Similar to:

  • School Report Card = How long they’ve been in school, e.g., the longer they’ve been in school, the closer they are to graduation

Credit Mix

  • Credit Score = A variety of credit types shows the ability to handle different types of credit obligations

    Similar to:

  • School Report Card = Successful completion of a variety of subjects may reflect a well-rounded education

New Credit

  • Credit Score = A sharp uptick in the number of new credit accounts might indicate the borrower is taking on more credit responsibility than he or she can handle

    Similar to:

  • School Report Card = A sudden increase in extra-curricular activities may hinder a student’s ability to complete school work

Key Points to Cover

Begin the discussion with the understanding that the purpose is to engage your child in the conversation. It’s unnecessary to review the finer details of credit scores with your kids in one sitting. Use these points to get started:

  • Similar to school, your cumulative behaviors or performance can be summarized into a numerical score.
  • If you don’t complete your schoolwork, you receive a low grade. There are also negative consequences for poor credit behavior.
    • Consequences are felt well before retirement. Your ability to secure your first apartment, car and even your first job can be based in part on your credit score.
  • Positive credit behaviors result in higher credit scores. As with school work, consistent work in and out of the classroom will likely result in higher grades on a school report card.
  • There’s a difference between debit cards and credit cards. Debit cards use money you already have in your checking account to pay for purchases. When you use a credit card, you’re taking out a short-term loan which must be repaid with interest. Credit card behaviors are factored into your credit score, while debit card activity is not.

Discussion Do’s and Don’ts

  • Don’t forget to sharpen your credit score knowledge before you have the talk.
  • Do use real-world examples to reinforce your key points. Review a credit card statement with your kids. Remove any information you feel is not relevant for the discussion. But, point out the interest charges and the terms of payment.
  • Do review an actual credit report with your children. If you feel uncomfortable using your own, you can use a sample one available online.
  • Don’t wait until credit mistakes have already occurred to have the talk.
  • Do equip your kids for success by showing them how to access financial education tools through Hughes Federal Credit Union.
Financial responsibility is about more than keeping a positive balance in a checking account. Teaching the younger generation about money management also requires a discussion about the behaviors that impact credit scores. Help them understand the difference between credit use and abuse and they’ll be able to start their financial lives on solid ground.