Credit cards and your teen, prepare for your child's financial future - American Heritage Bank

Watching your child become more financially independent is both exciting and rewarding.

Building a good credit history is an important part of this process; it will help your teen get approved for loans, car insurance and apartment rental applications, and it also can negatively or positively impact his chances of getting hired for a job.

It’s important that you help your teen understand the ins and outs of credit card use.

In most situations, one credit card and possibly one debit card should be sufficient until he becomes more responsible. As he matures, perhaps later in college or after graduation, he can consider a second credit card as long as he’s been responsible in keeping up with the first one.

Some tips that can help your teen build good credit with just one credit card:

Become an authorized user. As a result of the Credit Card Act, people under 21 years of age must have a co-signer or prove that they are financially independent in order to get approved for a credit card in their name. Instead of waiting, consider adding your teen to your account as an authorized user when he’s around 18. That way, you can monitor his spending habits and intervene if necessary.

Make small purchases and pay off balances. In order for your child to begin building a solid credit history, he’ll need to actually use the card periodically for small purchases. Otherwise, the issuing bank could possibly close the account due to inactivity. For example, if your teen is at college, he can pay for groceries or purchase gas each week using his credit card. It’s best to pay off the balance each month; otherwise he’ll pay interest fees and could fall behind in payments.

Never co-sign for anyone. Once your child reaches 21-years-old and possibly has a credit card in his own name, a friend or college buddy may approach him about co-signing for a credit card. Doing so can be financially devastating. If the friend is irresponsible, he could ruin your child’s credit history; plus, should the friend not pay his bills, your child would be liable for everything the friend charged.

Stay on top of all bills. Explain to your son or daughter the importance of paying all bills on time, not just the credit card bill. Everything from rental payments to cable bills must be paid on time; failing to do so will negatively impact his or her credit score.

Don’t buy pricey goodies. Your teen’s first credit card can be a tempting tool to purchase high-priced goodies, such as the latest iPhone or a Caribbean vacation. Explain that a credit card is a privilege; if you don’t have the cash for big-ticket items, then don’t be tempted to use the card. If not used responsibly, the account can accumulate debt rather quickly.

Instructing your teen about proper credit card use can go a long way toward a positive financial future.

Adding him to your credit card at first can be a great intermediate step before he strikes out on his own. Once he gets used to charging responsibly, it won’t be long before he gets his own card.

Source: American Heritage Bank