Helping young adults establish credit
By Tammy Tongusi
Financial institutions tend to overlook teens becoming adults, especially when it comes to providing education. Young adults will need to become financially independent, notably to prepare for purchasing a car or buying their first home. In today’s world, young adults plan for their future very differently than thirty years ago. I do not recall hearing from my parents or educators, “You should start thinking about building your credit.” As bankers, we help to start that process by giving our customers the tools they need to reach their financial goals. We know the credit scoring system creditors use to help determine your credit score. This will have an impact on many transactions going forward from whether or not a loan will be approved to the interest rate that will be paid and even the cost of car insurance.
Forte Bank offers a Teens with Green Club account that is designed for 13–17 year olds, and most of them are eager to get a checking account with a debit card. The teenage years are a great time to start the conversation and get them thinking. Many people do not realize that students and other young adults can establish credit through their parents’ credit if their credit card allows authorized users to be added. These card companies report to all three credit bureaus, so credit scores can start to build.
Financial classes for students and young adults, held in schools or at the bank branch, give them the tools needed to establish credit for future purchases and how to budget money to make them financially responsible. By promoting financial awareness, they can start taking steps to be on the path to a brighter future.
A “secured” credit card is a great starting point for customers with no credit or very low credit scores and is an excellent way to start building a credit history. The Forte Bank program requires account holders to have a separate deposit account with the bank and a balance of funds to hold as collateral. This deposit, which must be placed for at least 12 months, will establish the credit limit as a minimum of $250.00 and with no maximum. This will allow them to start understanding how to properly use a credit card. Stressing how important it is to make monthly payments on time and not maxing out the credit card every month is crucial for a young adult building their credit score. We generally recommend using credit cards for minimal purchases two to three times a month.
After they have received their secured card, they should take some time before they start applying for other credit cards. Having a credit use history will help in both building a credit score and gaining access to other lines of credit.
Another way to consider establishing credit is to explore the options of having a joint credit with a co-signer. This can be especially useful with an automobile purchase. Many banks will offer a reduced rate if customers sign up for automatic payments. Additionally, it will ensure their payments will be on time.
Forte Bank is very active in finding ways to ensure that future generations are responsible users of credit. Taking an active role at the start of their credit journey is a great way to help teens and young adults establish a solid credit score and understand how these products can be used to help them on their financial journey throughout life.
Tongusi is assistant vice president – retail banker and consumer lender at Forte Bank, Hartford and a member of the 2021–2022 WBA Marketing Committee.