Credit Cards For Teenagers And Students

Should your teen carry a credit card? There’s no one right answer. Most kids learn their money management skills from their parents. So, before deciding whether or not your teenager should have access to plastic, you must first ask yourself how effectively you model money skills.

If you are like most Americans, you’re probably having some difficulty with credit cards. A recent study from the Federal Reserve indicates that 56 percent of American families carry a balance from month to month on a credit card. VISA surveyed credit card holders and found that their average outstanding debt was $2,209.

Teens will probably follow our lead. If we model bad habits, we may be setting our children up for future financial difficulties. What we don’t want to teach our kids is to rely on credit when they don’t have cash.

That’s not to say, however, that a credit card can’t be a useful tool for teenagers or students. Used properly it can build credit ratings and teach money management skills. The following information will help you to make up up your mind.

Quick Credit Card Facts:

• Legally, you have to be 18 to apply for a credit card.
• If your teen works he may be able to get a card alone.
• If your teen isn’t working, then she’ll need a guarantor, usually a parent, to co-sign on the account.
• You can place up to two children on your own credit card account. You can supervise while your children learn how to use credit.
• You could obtain a secured credit card for your teen which requires the cardholder to keep an amount equal to the card’s credit limit in a savings account with the issuing institution. In addition to showing teens the link between money and credit, holders of secured credit cards, who establish solid payment records, often qualify for an unsecured credit card.

If you choose to place your children on your credit card, consider this:

• When the card is in your name, your teen cannot build a credit history. Decide which is more important: supervision as they learn to use credit or building a credit history.
• If you place your child’s name on your credit card, or if you co-sign (guarantee) their credit card, you are legally responsible for all debt.

Credit Terms

Part of the responsibility of holding a credit card is understanding the terms. All students and teens should:

• Know what costs are associated with your card (annual fees, APR, late fees, etc.) and how to avoid paying unnecessary fees.
• Create a budget and charge only what you can afford. Your credit card is not extra money. Think of it as an alternative and convenient way of spending the cash that you already have.
• Keep a tally of your monthly charges in your wallet with your credit card. Record everything you charge and when you charge it.
• Pay your entire balance in full each month to avoid paying finance charges. That $13.98 compact disc might end up costing over $20 once interest has been added for two months.
• Avoid at all costs paying only the minimum payment on your credit card. If, for some reason, you cannot pay the balance in full, pay as much of the bill as you possibly can. For every dollar you pay now, you’ll owe less in future finance charges.
• Save your receipts and verify charges against your monthly statement each and every month. Billing errors sometimes occur, and you can correct them only if you report them promptly and in writing.
• Avoid charging food, groceries or other perishables. These things will be gone before the bill even arrives!
• Write down your credit card number and the telephone number of the card issuer, and keep this information in a safe place. In the event your card is lost or stolen, this will make it easy for you to cancel the account and protect your credit.
• Avoid “maxing out” your card. Don’t think of your credit limit as the amount of money you can afford to spend. It is actually the amount your card holder has determined is safe for you to owe. Interest accumulates rapidly and can lead to a cycle of debt that can soon overwhelm you. Let your own budget set your spending limits.
• Avoid accumulating credit cards. One is enough. Multiple cards make it much easier to get in over your head with credit card debt.

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