In their late teenage years, your children may start to receive offers for credit cards.
By teaching your teens how credit works, you can help prepare them to make good financial decisions and avoid debt problems when using credit.
They will likely be influenced by how you use credit, so it is important to be a good financial role model.
Talking about credit can be awkward or difficult for some parents. Here are a few ideas on how to start the conversation.
Key points to discuss
Handle with care. Credit cards need to be used with care since there can be serious consequences if they are not used properly. To avoid problems, you need to have a foundation of good money management skills before you start using credit.
Start out slowly. If you decide you are ready to start using a credit card, consider keeping the credit limit at a low amount that can be paid off comfortably.
Credit equals debt. Credit means you are borrowing money and getting into debt. Before you use credit, think about how you will pay it back. Make sure you can fit the payments into your budget.
Save for your goals. Rather than spending on credit, set savings goals so that you have the money to pay for most purchases.
Credit is not extra income. Credit does not give you more money to spend. In fact, when you have to make debt payments out of your regular income, you have less money to live on. Live within your means.
When you use credit to buy something and you do not pay off the balance in full each month, you pay interest. This means you are paying more for everything you purchase.
Invest in your future. Some types of credit can help you improve your financial situation over the long term, if you use them responsibly. For example, a student loan for your education may help you get a better job and improve your income.
Your teen’s first credit card: Tips to pass along
Credit cards require discipline about paying on time and staying within credit limits. If you do not, you could end up paying extra fees or be charged higher interest rates.
Late or missed payments can also damage your credit report and score, which may have a negative effect on future credit requests, such as a car loan.
Help your teen avoid costly mistakes by passing along these tips:
Use credit for the right reasons. Use a credit card for convenience, not to increase your spending.
Pay it off in full. Pay off the entire balance every month. If you cannot pay the full amount, this is a warning sign that you may be spending more than you can afford.
Minimum payments can be costly. The longer you take to pay, the more it costs you in interest. Show your teen a credit card statement that shows how long it would take to pay off your debt if you made only the minimum payment. You can also use FCAC’s Credit Card Payment Calculator to see how much it would cost if you only make the minimum payment.
Build a strong credit history. Using a credit card and always making your payments on time will help you build a good credit history.
This can be important if you want to borrow money later—for example, for a mortgage on a house. Good credit can also be important for apartment rental and employment, as many landlords and employers will check credit history.
understand your rights and responsibilities as a co-signer
be aware that you may be held responsible for any outstanding balances
read the credit card agreement carefully and ask your financial institution about anything you do not understand.
If you decide to co-sign for a credit card with your teen, be sure to shop around and compare features, fees and rates. FCAC’s Credit Card Selector Tool can help you choose the card that best suits your teen’s needs.