As a parent of a student-athlete, one of the most important financial lessons you can teach your child is about credit. Whether your athlete is preparing for college, earning NIL (Name, Image, and Likeness) income, or thinking about life after sports, understanding how credit works is essential for their long-term financial success.
In this guide, we’ll break down the basics of credit, how it impacts your child’s financial future, and tips on how to build, manage, and protect their credit.
What is Credit?
Credit is the ability to borrow money with the promise to pay it back later. The amount of money you can borrow depends on your creditworthiness, which is determined by your credit score. A good credit score helps you qualify for loans, credit cards, and even rental housing, often at better interest rates.
For student-athletes, understanding credit is crucial as it impacts everything from financing a car to applying for student loans or renting an apartment.
Types of Credit:
- Revolving Credit: This includes credit cards, where you borrow money up to a certain limit and repay it in installments. You can borrow and repay repeatedly as long as you don’t exceed your credit limit.
- Installment Credit: This includes loans for things like cars, student loans, or mortgages, where you borrow a set amount and repay it in equal installments over time.
Why Credit Matters for Student-Athletes
Credit plays an important role in managing financial independence, and understanding it early on will help your athlete in several ways:
1. Establishing Financial Independence
As your child begins to handle their own finances—whether it’s receiving an athletic scholarship, earning NIL income, or getting a part-time job—they’ll need to manage credit responsibly. Credit is often required for large purchases like cars or apartments, and knowing how to use credit wisely will allow them to navigate these decisions with confidence.
2. Access to Financial Products
A strong credit history is essential for accessing loans, credit cards, and even securing a mortgage. College students often need credit for renting housing, especially if they want to live off-campus.
3. Building a Credit Score Early
Credit scores are built over time, and the earlier your child starts building a credit history, the better. A good credit score will save your child money in the future, as they’ll qualify for better loan terms and lower interest rates on loans.
How Credit Scores Work
A credit score is a number that represents your creditworthiness. It typically ranges from 300 to 850, with higher scores indicating better credit. Here’s how credit scores are calculated:
Factors That Impact Your Credit Score:
- Payment History (35%): On-time payments are critical to a healthy credit score. Late payments, defaults, or bankruptcies negatively affect the score.
- Credit Utilization (30%): This refers to how much of your available credit you’re using. It’s recommended to keep usage below 30% of your credit limit to maintain a good score.
- Length of Credit History (15%): The longer your credit history, the better your score. Early use of credit can help build this history.
- Types of Credit (10%): Having a mix of credit types (e.g., credit cards, loans) can positively impact your score.
- Recent Inquiries (10%): Each time you apply for credit, a hard inquiry is made, which can temporarily lower your score.
Credit Score Ranges:
- 300–579: Poor
- 580–669: Fair
- 670–739: Good
- 740–799: Very Good
- 800–850: Excellent
Building and Managing Credit for Student-Athletes
If your child is new to credit, it’s important to teach them how to build and manage it responsibly. Here are steps to get started:
1. Start with a Student Credit Card
A student credit card is a great way to help your athlete start building credit. These cards often come with lower credit limits, making them less risky but still useful for establishing a credit history.
2. Make Timely Payments
Encourage your child to make on-time payments for any credit cards or loans. Payment history makes up the largest portion of their credit score, so timely payments will go a long way in building good credit.
3. Keep Credit Utilization Low
Remind your child to avoid using too much of their available credit. The general rule is to keep credit utilization below 30% of their available limit. If they have a $500 limit, they should try to spend no more than $150.
4. Monitor Their Credit Report
It’s essential to monitor credit regularly to check for errors or identity theft. Encourage your child to request a free credit report annually through AnnualCreditReport.com. You can also sign up for credit monitoring services that alert you to any significant changes in the report.
5. Keep Credit Accounts Open
The length of your credit history contributes to your score, so it’s beneficial to keep old accounts open, even if they’re not used often. Closing an old account can shorten the length of your credit history and lower your score.
Common Credit Pitfalls to Avoid
While building credit is important, it’s equally crucial to avoid common mistakes that can damage credit scores. Teach your athlete to be mindful of these pitfalls:
1. Missing Payments
Missing payments can severely damage your child’s credit score. Encourage them to set up automatic payments or reminders to avoid missing deadlines.
2. Maxing Out Credit Cards
Spending too much on a credit card and maxing out the credit limit is a red flag. This increases their credit utilization ratio, which can lower their score. It’s essential to spend responsibly and within their limits.
3. Applying for Too Much Credit at Once
Applying for multiple credit cards or loans in a short period leads to numerous hard inquiries, which can lower their score. Advise your child to only apply for credit when necessary.
4. Ignoring Credit Reports
Ignoring credit reports can lead to missed errors or fraudulent activity. Encourage your child to regularly check their credit reports to ensure everything is accurate.
Credit Cards, NIL Earnings, and Financial Independence
As your child earns NIL income, managing credit becomes even more important. Many student-athletes will have access to credit cards or other financial products to help manage their earnings. Teaching them financial responsibility with credit early on will help them make sound decisions as they navigate NIL opportunities.
Managing NIL Earnings with Credit:
- Separate Business and Personal Expenses: It’s a good idea to open a separate account for any NIL-related income and expenses. This will help your child keep their personal finances separate from their business dealings.
- Save for Taxes: As NIL earnings are taxable, encourage your athlete to set aside money for taxes rather than spending it all. Managing money wisely will help them avoid surprises when tax season arrives.
- Build Credit with NIL Income: If your child earns substantial NIL income, it may be a good opportunity to apply for a credit card with a higher limit, allowing them to continue building their credit.
Final Thoughts: Empowering Your Athlete to Build a Strong Credit Foundation
Credit is a fundamental part of financial independence, and teaching your child how to manage it responsibly will set them up for success long after their athletic career ends. By starting early, making timely payments, monitoring their credit, and avoiding common pitfalls, your athlete can establish a strong credit foundation that will benefit them in the years to come.
If you have any questions about how to teach your child about credit management or need resources to help them navigate their financial journey, feel free to reach out to us at in**@**********************es.com. We’re here to support you and your child on the path to financial success!
Would you like more information on credit management or how NIL earnings impact credit? Contact us today!