New responsibilities are heaped upon teens and they are expected to deal with the pressures like adults. When it comes to math and English school takes the reins, but when it comes to finances and keeping a good credit score, parents need to be role models. But what are the first things teens should know about using credit cards? Here are some things to cover with your son or daughter when teaching them about credit cards.
The Responsibility of Credit Cards
It’s important parents impress upon teens that credit card offers in the mail do not mean you must apply for the card. Companies send out offers like these every day. Letting your teen know that these offers are not special, is important, as every credit card you have is a contract you must adhere to. When choosing a credit card it is important to read all the fine print. Show your teen that every dollar spent with a credit card has to be paid back in full. At no time does a credit card mean you have more money than you actually do.
Making Payments and Borrowing Money
Making payments on time is very important. This can mean a minimum or full payment. However, it’s important teens understand a minimum payment will cost more in the long run. You are borrowing money, and when you’re not paying the card off in full each month, the interest adds up over time. Because of this, it’s important teens understand not to take out too many credit cards or loans. Doing so can hurt your credit score and put their financial futures at risk.
Identity Theft
Just like irresponsibility with credit cards, identity theft can also ruin your credit score. Teens should know about the hazards of identity theft, especially when shopping online. Identity thieves see children’s identities as easy targets. There is no poor credit history to get in the way of indiscriminate spending. Also, children are not likely to check on their credit score, so the likelihood of getting caught is low.
Make sure your teen is aware of services that monitor potential thefts of this order. With companies like Lifelock, you can help keep your teen safe from identity theft. Lifelock monitors banks accounts, credit cards, and even social security numbers, for the event of identity theft.
Credit Score
Teaching your teen about his credit score is very important. When he’s older this will likely be taken into consideration when he’s making a down payment on a house or car. It’s important that teens know how credit scores are calculated and to check their credit score regularly. These scores are calculated from 300 to 800 — 35 percent is based on your payment history, 30 percent on how much money you currently owe to lenders, 15 percent is determined by the length of your credit history, 10 percent is determined by the number of credit accounts you have or applied for, and lastly, 10 percent is based on the mix of credit accounts you have. This means mortgages, installment loans, etc.
This may seem like a lot to a teen who is just getting his first credit card. So in order to keep things in perspective, encourage your child to pay his bill in full every month. Never spend money he doesn’t already have. And even speak with him about limiting the number of items he purchases with his card each month. These are simple, yet effective steps to building good credit without going into debt.
