As the parent of a growing teen, there are several ways that you may be able to help your child build a strong credit history that sets them up for success.

1.  Educate Your Teen on Credit Card Basics 

Unfortunately, personal finance isn’t always taught in school, so it is a good idea to sit down with your teen and teach them how a credit card works and how building good credit can help them in the future.

Warn your teen about the consequences of poor credit and carrying too much credit card debt. There are also several credit card mistakes that they should learn to avoid:

• Don’t get caught up in the cash, points, or miles game, as it can lead to overspending and debt.
• Available credit isn’t an extra paycheck. If you lean on credit cards to pay for things you can’t afford, your troubles will only worsen.
• If you want something special, save for it. You’ll be able to charge the expense and pay the bill with the money you’ve set aside.
• A missed payment will remain listed on your credit report for seven years and ding your credit rating.
• You may want to spread the payments of an exceptionally costly purchase over time, but don’t let it linger for over a year.

When discussing credit with your teen, be sure to keep things simple and stick to the basics.

2. Try Out a Prepaid Card 

Before you open a credit card for your teen, consider providing them with a prepaid card. A prepaid card will allow them to make purchases while getting used to living within their means.

Because prepaid cards come with fees and cannot build your teen’s history, they should only be used for a short time until your child has demonstrated good financial habits and you believe they are ready for a credit card.

3. Open a Checking Account 

Most banks and credit unions offer checking accounts for minors or students, typically having lower fees than standard accounts. By opening a checking account for your teen, you can help them get used to making deposits and keeping track of how much money they have. When you believe your teen is ready, you can add a debit card that’s linked to their checking account.

If you want to monitor your teen’s account to make sure they are going down the right path, you can become a cosigner on their account. Keep in mind that if you cosign your teen’s checking account, you’ll be responsible if they overdraw it.

4. Sign Your Teen Up for a Credit Card

Once your teen has proven that they are financially responsible, it’ll be time to take the next step and sign them up for their first credit card so they can begin building their credit history.

According to the Credit CARD Act of 2009, anyone under the age of 21 cannot get approved for a credit card without a cosigner or their own source of income. If your child does not work, you will need to cosign their application.

Another solution is to make your teen an authorized user on your credit card. This is the ideal option if your child is still in high school, as it can help them establish a good credit history while they are living with you and you have more control over their actions.

5. Consider Opening a Joint Secured Credit Card 

If you’d like your teen to have their own credit card but are concerned they may ruin their credit or your own, you can open a joint secured credit card. Because secured credit cards require an initial deposit that serves as the credit limit, doing so will limit the amount of credit available on the card and help them prevent overspending. Although secured credit cards usually carry higher fees than traditional cards, they can still help your teen build credit and provide you with some peace of mind. Some secured credit cards will transition cardholders to a standard unsecured credit card if they maintain good financial behavior with the card.

6. Teach Your Teen How to Monitor Their Credit History 

After you have either opened a credit card for your child or added them as an authorized user on your card, you’ll need to teach them how to monitor their own credit history. You may want to show them what your credit report looks like so that they know what to expect.

7. Be a Good Role Model

Children tend to learn from their parents’ behaviors, so it’s essential to set a good example for your high school or college students. Pay your credit cards on time and in full, live within your means, and stay out of debt as much as possible. If your child knows that you practice healthy financial habits, they’ll be more likely to do the same.

It may be just a simple three-digit number, but your credit score plays a significant role in determining the interest rate you pay for credit cards, loans, and mortgages. Credit scoring agencies, such as FICO, use information from credit reports to rank consumers by a number ranging from 300 to 850. The exact number can change on a monthly basis, and can be surprisingly volatile; according to a study by the Consumer Financial Protection Bureau (CFPB), two-thirds of consumers have experienced a change in their credit score of 100 points or more.

FICO’s formula for determining credit scores is a closely guarded trade secret, but it’s known to take into account such factors as the length of your credit history, the amount of available credit you’re using, and whether or not you’ve made any late payments.

The effect of one change

Another CFPB study revealed the impact on credit scores that was created by one change to the information provided in credit reports. The three major credit reporting bureaus — Equifax, Experian, and TransUnion — are now excluding tax lien and civil judgment data from all credit reports, following a settlement with attorneys general in 31 states.

These records were provided by courts when someone owed money as a result of a lawsuit or other legal ruling. The bureaus estimated that as many as 96 percent of civil judgment records and 50 percent of tax lien records lacked sufficient identifying information — they could wind up in the credit report of someone with a similar first and last name — so they agreed to drop the data from their reports.

The only public data now being included in credit reports is bankruptcies.

According to the CFPB study, among consumers who had existing civil judgments or tax liens that are no longer being included in their credit reports:

• 25 percent saw a significant change in credit score
• 17 percent saw a boost in their credit score
• 6 percent moved to a credit score band of prime or higher (more than 680)
• 66 percent stayed subprime (below 550) or deep subprime (300 to 500)