Teen Credit Cards
Teen credit cards can help teenagers learn about managing money while they are still receiving instruction from their parents. Having his, or her, own credit card is a good way for a teenager to start to build a credit history that will last them their entire life. Here is what you need to know about teen credit cards.
Teach Your Teen to Manage Money
A teen credit card with a low limit or a prepaid balance can be a good way
to help your teenager learn about credit. Having a credit card also gives
the teen a chance to make mistakes while they are still at home and under
the watchful eye of mom and dad. Teens need to learn the basics of credit
and teen credit cards are a way to teach them what they need to know.
Low Limit and Prepaid Teen Credit Cards
Low limit or prepaid credit cards are the best choices for a teenager who
is getting his or her first credit card.
Low limit cards
The present spending limit for these cards is often as low as $200. To get
this credit card, a parent must co-sign with the teenager. A positive
aspect of these cards is that the parent can supervise how the teen uses
the card.
Prepaid cards
With this card a parent sets a spending limit for the credit card by
putting money into the card's account. When the teenager needs more money,
the parent adds more cash to the balance of the prepaid credit card. When
the teen depletes the balance in the prepaid card it cannot be used until
someone adds money to the account.
Interest
Credit card companies charge money for any unpaid balance left on the
account. This charge is known as the interest rate. A credit card interest
rate may be fixed, or it may be variable. A fixed interest rate is always
the same. A variable interest rate is a rate that changes when another rate
changes (often the prime rate). Parents should help teenagers to check the
rate of their credit card carefully. Some teen credit cards have low rates
at first, but increase their rates after a short time.
Rewards
Many teen credit cards offer rewards based on the dollar amount and number
of purchases that a teenager makes. While your teen may be drawn to the
rewards that a particular teen credit card offers, it is up to you, as the
parent, to make sure that they are getting the best offer. Explain to your
teen the importance of considering other features of the credit card, such
as the interest rate.
Use Teen Credit Cards to Build Credit History
Credit history is important. A good credit history enables an individual
to get the credit that he or she needs to make necessary purchases
throughout life. To build a good credit score, your teen must make his or
her credit card payments on time. Caution your teen not to skip a
payment.
The Bottom Line
Teen credit cards allow teenagers to build a credit history while they are
still under the watchful eyes of their parents. Make sure that your teen
knows that money charged on a credit card must be always be repaid at a
future date. It is also important for your teen to remember that the way
that they handle credit will affect their credit score. Caution your teen
to always pay his or her credit card bill promptly.
