Teenage Credit Cards
From LoveToKnow Creditcards
Teenage credit cards can be a great way for young people to learn about the basics of credit management to prepare them to someday manage their finances on their own. On the other hand, credit cards in the hands of teenagers can mean real trouble if the parents don't actively assist the teenagers in managing debt and payments.
Options for Teenage Credit Cards
Credit card issuers differ in what the lowest age is that they will allow an applicant to have a credit card, but until a teenage turns 18 most instances require a parent as a co-signer. After a teenager hits 18, however, he or she is free to apply for as many credit cards as desired.
Parents who want to give their teenagers some hand-on practice with credit management can choose to get a card for their teenagers in a variety of ways.
Cosign for a New Card
Cosigning allows the parents to have access to the account while also potentially giving the teenager a low interest rate on the card because of the parents' good credit history. When parents cosign for the cards they are still responsible for the debt even though they may not have access to make purchases off the accounts. In other words, if the teenager fails to make a payment the responsibility legally falls onto the parents, even though they did not make purchases on the cards.
Most financial experts advise that the card should have a low limit to avoid any financial problems that are difficult to recover from. For example, a teenager maxing out a credit card with a credit limit of $300 will have learned a valuable lesson, but a teenager maxing out a credit card with a limit of $2000 may put the family into financial trouble.
Add Teenager to Existing Card
Parents can add teenagers as authorized users on existing credit card accounts. Parents should consider only adding teenagers to credit cards that have low credit limits because otherwise the teenager has access to a large available balance.
This method can be preferable to some parents because a new account doesn't have to be opened. Instead, the teenager is granted access to the existing account and a card is issued in the teenager's name. Parents are still fully responsible for the monthly payments, so an agreement should be made between the parents and the teenager which spell out a payment plan that everyone can agreement on.
Prepaid Credit Card
Parents who want to teach teenagers about managing personal finances – but who aren't ready to give teenagers full access to a revolving credit account – may want to consider starting with a prepaid credit card. These cards do not have revolving balances attached to them, but instead have an available balance that is loaded onto the account by the parent or teenager. If $500 is loaded onto the card, then $500 is the available balance, minus any fees.
Although prepaid credit cards can be a great way to teach teenagers (and younger children) about managing money, the lessons will not be as authentic with regards to credit management because there isn't interest charged on unpaid balances and there aren't minimum monthly payments. Prepaid credit cards can be a good first step in teaching teenagers about managing a card.
Beyond Teaching
Many parents find that teenage credit cards are a necessity for a variety of reasons. Some teenagers need to make lots of purchases for school or extracurricular activities and it is simply easier for everyone involved if the teenager has a credit card to use instead of getting cash from parents every time a purchase needs to be made.
Parents should keep a close eye on credit card accounts held by teenagers, even if the teenagers have displayed an ability to effectively manage a credit account so far. It is far better to catch a potential financial problem early on instead of after a tremendous amount of fees have been charged to the account.
Learn More
This page has been accessed 555 times. This page was last modified 23:26, 6 February 2009.
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