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Is Your Teenager Ready For Their First Credit Card?

The Deal With Teens And Credit Cards

When Bill Hardekopf’s son began his senior year in high school, Hardekopf co-signed on a credit card.

While that might sound risky, Hardekopf wanted to spend his son’s last year before college discussing the monthly statements as a family and making sure he paid his bill. He also knew it would help build his son’s credit history.

“A credit card is a great idea for some kids and it’s a terrible idea for others,” says Hardekopf, who is CEO of LowCards.com and lives in Birmingham, Alabama. “It provided a lot of great teachable moments for us.”

So, is your teenager ready for a credit card?

Hardekopf recommends that answer parents question with a simple test: Can your teenager save money from allowances and gifts, and not spend everything? If so, then your teenager’s likely ready to handle the responsibility of a credit card.

Having a credit card allows your teenager to build a credit history. This is critically important, explains Kathy Virgallito, national manager of community affairs for Apprisen Financial Advocates.

Young adults need to start building a credit file so when they want to rent an apartment or get a car loan or mortgage, they’ll have a history for lenders to review, Virgallito says.

But remember, if your teenager is not able to use the card responsibly, it can hurt, as mush as help, his or her credit history.

Finding A Good Credit Card To Start Out With

There are several options to get that first card. They include:

  1. On his or her own, if your teenager has an income.
  2. With you as a co-signer, but note that if your teenager skips or misses a payment, this will impact your credit score as well as your teenager’s.
  3. As an authorized user on one of your existing accounts. This is an easy way to start building a credit history. Your regular payments will also show up in your teenager’s credit history. Be sure to inquire with your card issuer that they will indeed report these payments for to the credit bureaus (for your teenager) because not all banks do. Also, if your credit history is less than stellar, that can impact your teenager in a negative way. So think twice about this option if that’s the case.
  4. A secured card is another option. This is a credit card that is secured with cash deposit, so if your teenager skips or misses a bill, the bank can simply draw on that cash for payment. The credit limit for these cards equals the amount of the cash deposit, so a $500 deposit gets you a $500 credit limit.

Once your teenager has a credit card (or, ideally, before it arrives in the mail), you’ll want to follow these tips to help your teenager use the card responsibly.

  • Start a low credit limit (around $500).
  • Urge your teenager to set up automatic payments from his checking account. If you co-signed, you’ll want to make at least the minimum payments yourself.
  • Set up a monitoring system (be upfront with your teenager about this). This can include text alerts of large transactions, balances nearing the credit limit, payment due or late, etc.
  • Encourage your teen to use the card for convenience and to build a history—not to supplement income. Every month’s bill should be paid in full.

Teresa Murray

Teresa Dixon Murray is a financial reporter for the Cleveland Plain Dealer.

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