Your kids may be too young to use acredit card or personal loan now, but eventually, they’ll need them. All grown up and adulting in the real world, they may use these accounts to help them with college, their first apartment, or an unexpected emergency.

But before they apply for their very first loan or credit card, it’s up to you to make sure they understand what they’re getting into.

Not sure if you’re up to the task? Check out these tips to help you show how to use credit responsibly.

Explain How it’s Not Free Money

You might not have cash, but as long as you have some plastic in your wallet, you can buy what you want, right?

You know that it doesn’t quite work that way, but your kids might not.

Let them know they need to pay off what they charge onto a line of credit or credit card, and the longer they take, the more they end up owing.

Talk to them about how interest factors into borrowing money, so they understand the cost behind these sorts of accounts.

Clarify When it’s a Good Time to Use Them

With the previous lesson under your belt, your kids will understand it costs more than cash. Drive this lesson home by telling them when they should use these accounts.

Generally speaking, they’re not meant to help pay for essential, fixed expenses like rent, utilities, or groceries.

Online installment loans direct lenders like MoneyKey recommend using short term loans only in emergencies. Take some time to explore www.MoneyKey.com with your kids to learn more about when to use these options.

Remind Them They Can’t Be Late

Just like being late to school gets them into trouble, being late when paying bills has consequences. They have to pay their bills on time, otherwise they will be charged a late fine, accrue extra interest, and may even add negative history to their credit report.

Unravel the Mystery Behind a Credit Score

When you talk about late payments, it’s the perfect time to discuss their credit report and score. Compare their consumer file to their report cards at school. This file grades them on how well they manage their accounts.

While their grades determine what classes they can take and whether they qualify for scholarships, their credit score determines the types of financial accounts they qualify for.

Generally speaking, the higher their score is, the better chance they have to apply for a credit card or cash loan. The lower their score is, the more challenging it may be to be approved.

Break down their report into the five factors that impact their credit history: payments, credit utilization, age, variation, and new accounts. Go over what these mean and show how their decisions may affect their future.

Be Honest

Teach your kids about the pros and cons of using these products. Don’t be shy using your own accounts as an example. While you don’t have to reveal everything about your finances, involving them in the family’s budget boosts their financial know-how. Your honesty now helps them handle their finances in the future