Your children are growing and, if you are like most parents, there's so much you want them to know by the time they reach that "age of independence." To be successful adults, you know that your children will need a few lessons in money management. One of the most important may be teaching them about the responsible use of credit. Here are three basic concepts about credit to guide you.

Credit Is A Privilege, Not A Right
Credit - the act of borrowing money from another person or financial institution for today's purchases with the intent of paying it all back, plus interest - is a privilege. When someone decides to lend money or grant "credit" to another person, it is a decision to trust that person. Usually, a lender will determine your child or any borrower's "credit worthiness" based on the three "C's" of Credit. These are:

• Character - Is your son or daughter likely to repay the lender? This takes into account your child's or any borrower's credit history. For example, if your child has borrowed money before, did they repay it? Lenders like to know that your child has paid back every penny of the money they borrowed as agreed. If your child has been responsible in the past, it is likely they will be again. And it's likely they'll borrow again in the future. On the other hand, if payments have been made late or were missed altogether, a lender may more carefully evaluate whether to issue credit to your child again.

• Capacity - Does your child have the ability to repay the money? Lenders, of course, will want to verify a dependable source of income. They will likely calculate the amount of existing debt one has compared to the income potential. This is to ensure that there is enough income available to pay for all debts, in addition to living expenses.

• Collateral - Does your child have assets (articles or belongings of any significant dollar value) to secure the debt with? For example, if they are borrowing to purchase a car, it can be used as collateral. Lenders may want the reassurance that an alternate source of repayment is available in case your child, for one reason or another, is not able to repay the amount of credit owed.

Credit Is Money Owed, Not Extra Cash
It's likely that most of us, as parents, have lent a dollar or two to our son or daughter for one reason or another. And we probably did not charge them for it. But a lender will charge interest on money that they lend which is essentially a rental fee, for the use of the money. And unlike "extra cash" from mom or dad, every penny must be repaid, plus the interest. It may help to explain that any time money is borrowed, future income is committed to repaying that obligation. Emphasize that credit costs money; there is interest to be paid, and all funds borrowed must be repaid. It may help to discuss one of your loans with your children. Tell your children how much you borrowed, the amount you pay each month, and the total interest you owe.

A Credit Record Can Affect Future Opportunities
Explain to your children that whenever they borrow money they are creating a financial reputation for themselves. When they borrow money, your children are accepting an opportunity to demonstrate that they are responsible and can be trusted to repay what is being borrowed. This will help them establish a reputation or history for having good, responsible habits. And your children will get credit for it, because lenders, landlords, and prospective employers will probably review their credit history to determine reliability. Like a good report card, a good credit record offers future opportunities.

On the other hand, if a borrower creates a reputation for being "sluggish or late" with repayment or doesn't repay the money owed at all, it's likely it will be difficult for him to borrow money in the future (at least until he or she can reestablish their ability to use credit responsibility). Most lenders can understand an occasional late payment (sometimes due to a busy schedule or simply over looking the payment due date). What's important, is that making "late payments" doesn't become a habit. (And good credit habits are important since, as children become adults, their credit history could be reviewed when applying for a job, car or home insurance, etc.).

Be sure to inform your children that, as the borrower, they should communicate with the lender if they foresee the inability to repay the money owed. Paying something is better that doing nothing. Your son or daughter will find that most lenders are quite willing to work out a payment schedule that is more manageable. This responsible approach will not only be appreciated, but it will likely prevent serious damage to their credit history.

Here's what you can do you help him or her get started with establishing a reputable credit history:

• Encourage your child to open a checking or savings account. If they manage these accounts responsibly, they establish a positive relationship with their financial institution and become good candidates for receiving credit in the future.
  
• Co-sign a small loan ($200 to $600) with them. Perhaps your teenage daughter wants a new stereo that will cost them about $500. Assist her with applying for a small loan and co-sign it, but allow her to be fully responsible for making payments on time.
  
• Suggest applying for a credit card. This could require your co-signature and, of course, you'll want to carefully monitor your child's use of it. But learning the appropriate uses for a credit card and learning to repay the amount owed is a valuable lesson for any young person - and it can help establish a good credit reputation, too.

By helping your son or daughter understand the life-long value of establishing a good credit history, you can help pave the way for credit opportunity in the future.

Start Establishing Credit With Your Credit Union!
FAIRWINDS Credit Union is the ideal place for your son or daughter to begin establishing a good credit history. We offer:

• Savings Accounts - children's savings accounts earn dividends no matter how small the balance. And the more your child saves the more dividends they earn.
  
• Checking Accounts - no service charges if you maintain a monthly minimum balance of at least $250.
• Lending products - for young borrowers able to demonstrate their willingness to take responsibility for using credit wisely.
  

Call Member Services at (407) 277-5045 or toll-free at (800) 443-6887 for a full range of products available to young members. Or you may click here to view New Account Choices.