Wednesday, August 17, 2016

Walk Your Teen Through Your FICO Score Before That First Apartment

Low FICO Apartment

“Dad, can you be a cosigner on my apartment lease? They said I’ll need you because my FICO is under 620. Oh, and Dad, what’s a FICO?”

Renting an apartment is often the first financial transaction your teen encounters that relies a credit score. Don’t let that be your teen’s first introduction to the term “FICO.”

Educate your teen about the most widely used credit score ahead of time. To make it memorable and engaging, walk your teen through a familiar, real world example. Your own score.

Haven’t checked it lately? These days, you might be able to get your FICO score free from your credit card company or bank. Otherwise, you can get it free from Discover — whether you’re a customer or not. Just visit (Be sure you’re comfortable with the privacy policy and terms first though.)

With your latest report card in hand, step your teen through each of the five categories that contribute to your score. Explain how your financial decisions have impacted each:

  1. Credit Mix (10% of score): “No real message for you here. Showing that I can handle different types of debt — a credit card, a mortgage, a car loan — makes me look like a better credit risk. But I wouldn’t want you to take take on unnecessary loans here to try to goose your score. Besides, this is the least important category of the five.”
  2. New credit (10% of score): “Hmmm, I shouldn’t have opened a new credit card, shopped around for home loans, and taken on a car loan all at once. All that new debt activity makes me look a bit desperate financially.’
  3. Length of credit history (15% of score): “Churning those credit cards early on to chase points wasn’t such a good idea. It would have been better for me to just hold on to one card consistently after I got out of college. Then I’d appear less risky.”
  4. Credit Utilization (30% of score): “I’ve been putting too many purchases on my credit card lately. Using up most of my available credit each month makes me look risky. I should shift more everyday spending to my debit card.”
  5. Payment History (35% of score): “Ouch, that one medical bill that we forgot to pay went into collections recently and really hurt us. Mom and I need to be more organized here.”

Why not come clean on your FICO score to your teen? Your teen will learn valuable lessons from your mistakes or be inspired by your stellar record. Either way, the sooner your teen understands how a FICO score works, the sooner your teen can move out of the house. Bonus.

Want to turn these tips into action? Check out

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