Credit Cards for Teens
From LoveToKnow Creditcards
Some people think that credit cards for teens are just a bad idea overall. However, they do have a lot of redeeming value. If teens learn how to manage money early, they have an financial advantage as they grow into adulthood. Also, getting a teen that first credit card, and teaching them how to repay it wisely, is a great way to begin to establish credit history.
What to Look For
There are plenty of companies out there that are thrilled to issue credit cards for teens. In fact, teens in college often get barraged with offers as early as the first day they set foot on campus. Many credit card reps entice students with free clothing, electronics and even coupons for pizza. This should be a red flag to stay away. Instead of going for whichever card has the coolest picture on it or comes with the best DVD, this is what teens need to look for:
- Low credit limits, between $500 and $1,500, so they cannot run the balances up too high
- Competitive annual percentage rates (they can compare them to the averages at Bankrate.com)
- No annual fee
- An interest free grace period of at least 25 days
Teens often get pulled in by purchase rate promotions, such as “Zero percent interest for the first six months.” However, these deals are not as good as they seem. The object is to get the teen to run up the balance on the card and then not be able to repay the entire balance during the promotional period. Then, he or she is saddled with a high interest rate on the existing balance and any new charges.
Alternatives to Credit Cards for Teens
By law teens cannot open a credit card account without a parent's co-signature until they are 18 years old. Teens who are under 18 or teens who lack the financial savvy needed to responsibly manage a credit card may be better off practicing with these financial products instead of using a credit card:
- Checking account: This account can be the first step to teaching teens to pay for things with their own money. It requires that they keep an eye on the balance to buy the things they want. They can also see the consequences of spending more than they have firsthand.
- Debit card: Unlike credit cards, debit cards require teens to only spend money that they have in their account. This can get them in the habit of paying with plastic without the risk of interest charges or defaults.
- Prepaid credit card: Prepaid cards are more like gift cards than credit cards, although they carry the credit card name. Parents, or the teens themselves, load the cards with money before they can use them, meaning they can’t charge above the total balance available.
Adding Teens to Existing Accounts
Some parents choose to add their teens as authorized users on their own personal credit card accounts. That way they can see all of the teens’ charges when the statement arrives in the mail each month. This method has some benefits and some drawbacks. The big positive is that it gives parents the opportunity to sit down and discuss spending with their teens each month and calculate their debt plus interest. Then teens can pay their portion of the bill directly to their parents, ensuring they stay on schedule. It’s important for parents to revoke spending privileges if teens pay late or not at all since this is not acceptable behavior when they get out in the real world.
Important Note About Building Credit History
If the main goal in getting the credit card is to help teens build credit history, it’s a good idea to wait until they turn 18 so they open credit accounts on their own. Minors cannot be primary account holders and must have an adult co-sign for their cards. This means that the repayment information, good or bad, will show up on the adult’s credit file, not the teens’.
Learn More
This page has been accessed 817 times. This page was last modified 23:25, 6 February 2009.
© 2006-2009 LoveToKnow Corp.
Print this page
Follow ltk on twitter
Visit us on facebook