Categories: Financial Planning, General Tips
One way to help your teen work toward financial independence is to encourage them to begin building good credit. The best way to do this is to help them open a first-time or student credit card with a relatively low spending limit that can be used for small purchases and paid off on time and in full. Use this checklist of considerations to help decide if your teen of 18 years or older is ready for a credit card, and which may be the best fit for your family.
Is your teen ready for a credit card?
The most important question may be: How responsible is your teen? Can they handle having their own credit card? Be sure to talk with your teen about what it means to have a card, how to use it, and the benefits or drawbacks that may come with this new level of responsibility.
Set a spending limit
Most first-time or student cards have a relatively low spending limit to help avoid charging more than they can afford to pay back. If your teen has a part-time job, a good way to decide on a comfortable credit limit may be to review their paycheck together to see how much income they have available every month to help pay the bill partially or in full.
Be aware of the terms & fees
What are the terms and fees associated with a new credit card? Compare the terms and options on the cards you’re considering to find the best fit. Check out things like the APR (Annual Percentage Rate that includes interest and fees), opening or annual fees, payment terms, and potential rewards.
Determine who will pay the bill, and from what account
Will your teen be responsible for paying the credit card bill? Are you going to pay it, or do you plan on splitting the expense? This is important to talk with your teen about to help set expectations and stay on track for making payments. If your teen is paying the bill, consider helping them open a checking account that can be connected to the credit card payment. Learn about options for Digital Spend Accounts and student checking at The Summit.
Research features & benefits
Cash back, bonus points, and fraud protection are some of the features that may be important for you and your teen when opening their first card. Consider the options that would be most useful as your teen begins this new financial stage.
Select a financial institution
Many families choose to open their teen’s first credit card with a local financial institution, and often it makes sense to use the same institution where your family or teen has a checking and/or savings account. This can make monitoring the account, payments and support more convenient.
Building good money habits, and a solid credit rating can start early with responsible management of a first-time or student credit card. Check The Summit Federal Credit Union’s no-credit credit card option, or make an appointment with a Relationship Specialist at our Virtual Branch to learn more.