Helping Teens Use Credit Wisely

A credit card can be a powerful financial tool, but the responsibility of having one must be taken seriously.

Start by discussing money basics with your teen. A helpful place to begin is our Rules of the Road page. Your teen can’t apply for their own card until they turn 18, but even then, you might want to monitor their activity until they understand credit card basics and develop good habits.

Ready for plastic?

Credit card misuse is a leading cause of unnecessary debt among college students. Here are some steps to help ensure that your son or daughter is well prepared for their first credit card:

• Make sure your teen has a checking account before they get their first credit card. It's important to learn how to track spending before using a credit card and to understand the importance of having funds available to make payments.
   
• Give your teen a credit card linked to your own credit card. This lets you monitor their card activity and help them learn to use credit responsibly—before they do it on their own.
   
• Limit how much your kids can charge. Whether they're authorized users on your card or have their own, start with a low limit.
   
• Help them understand the details. When it's time for your teen to get their own credit card, make sure they know exactly how the card works, what the interest rates and fees are, when the bill is due, and the consequences of missing a payment.
   
• Emphasize the importance of a good credit history. Discuss how misusing a card can affect their future ability to borrow money, rent an apartment, or buy a car or home.
   
• Explain how interest accrues. Show your teen just how much it costs to carry a balance and how much interest they might end up paying over time if they only make minimum payments.

The rules never change

If your teen is ready for a credit card, make sure you teach them to make smart credit choices beforehand. From turning down credit card offers to developing good bill-paying habits, learning how to manage credit now can help them manage debt throughout their life. Here is some good advice to pass on:

Choosing the right credit card

• Shop around for the right card. Look for one with low interest rates and no annual fees.
   
• Read the fine print. What's the interest rate? What's the billing cycle? How long is the grace period? How much are late fees?
   
• Don't sign up for offers without looking at the rates.
   
• Don't be lured into opening multiple cards or accounts with department stores. One card is enough to keep track of—especially for a teen. And several credit inquiries—one inquiry takes place for each card application—can hurt your credit score.

Handling payments

• Log on to your credit card account online or use your bank's app to keep track of all your purchases.
   
• Charge only as much as you can afford—or less.
   
• Don't use a credit card for purchases under $10. These small purchases can add up fast. Use cash instead.
   
• Don't carry a balance if you can avoid it. It's best to pay off the entire balance before the end of the grace period so you don't have to pay interest. If you can't pay off the entire balance, at least pay more than the minimum.
   
• Pay your bills on time. Late fees are expensive and accrue interest over time. They can also negatively impact your credit score.

Regulations to protect you and your teen

Anyone under 21 needs an adult co-signer to open a credit card account or must show proof that they can repay the debt themselves. They must also get permission from a parent or guardian to increase the credit limit on a joint account held with that adult.

Want more ideas? Read Ask Carrie for more advice on kids and teens, or see banking, credit and debt.