Help Your Teenager Apply for the Right Credit CardJuly 15, 2011 - 4:42 pm
Young adults often make credit card mistakes because they haven’t been taught anything about credit cards. They’ve learned much of what they know by watching you and others use a credit card. Because of that, they won’t completely understand what goes on behind the scenes – that credit card balances accumulate and a payment is required every month. Help your teenager or young adult establish good credit habits by helping them pick the right credit card from the start.
Initiate the conversation. Don’t wait for your child to tell you when he or she thinks about getting a credit card, it may never happen. Instead, be proactive. Most teens are interested in credit cards well before age 18, but thankfully, they can’t get one. You might bring up the conversation as the child approaches age 18 or soon after. Ask an open-ended question like, “What are your thoughts on credit cards?”
Encourage your child to have a job first. Fortunately, your child won’t be able to get a credit card on their own if they’re under age 21 and don’t have a job. Credit card issuers are prohibited from giving out credit cards under these conditions. Help your teenager understand the importance of having a steady income before getting a credit card – it gives them the money they need to repay the credit card balance they charge.
Look up credit card offers online. Sit down with your teen and look at a few credit card offers online. Help them understand what makes a good credit card and what makes a bad one. Compare the interest rates and fees of different credit cards, explaining why a high interest rate is bad – because you’ll have to pay high interest charges and it takes longer to pay off the credit card balance.
Know the features of best credit cards. The best credit card for a young adult has an average to low interest rate, a low credit limit, and no annual fees or other hidden fees. In general, young adults should stay away from rewards on their first credit card because they may run up a credit card balance just to get additional rewards. Scrutinize all credit cards that target young adults and students because they’re not all good starter cards. Some have high fees, high interest rates, and other features that aren’t good for a young adult with his first credit card.
Avoid cosigning. Of course, once you initiate the credit card conversation, your child may become even more interested in getting one. Without a job, your teen will need a cosigner with income and good credit to help them get a credit card. Unfortunately, cosigning your child’s credit card means you’re on the hook for the payments when they can’t afford to make them. Any missed payments will affect your credit score. It’s ok to decline cosigning their credit card. Encourage your teen to wait until they have the income to afford a credit card on their own.
Once your child has his first credit card, check in periodically to see how things are going. Ask if they’ve been paying their bill on time every month and if their balance is at a reasonable level – below 30% of the credit limit. Resist the urge to bail out your child who’s in credit card trouble. Instead, help them by showing them how they can pay off the balance on their own.