The process of using our credit card can be a convenient and healthy part of our financial lives, as long as the bills are paid at the end of the month; however, it can also create an unhealthy relationship with money. As I indicated above, all our kids see us do with money is spend it; they never see us pay the bills. Think about that.
The conversation about charge cards is not just about the importance of credit and how to get it; more notably, the “talk” should be about how to handle it responsibly.
Your teens bound for college may have a challenge getting a credit card, particularly when starting out. As such, here are a few things for them to consider in order to establish credit:
– Apply for a credit card issued by a local store or a gas station. Local businesses may be more willing to extend credit to someone with no credit history. Make sure that your teen uses the card and then makes payments on a regular basis. This starts to build a sound credit history. It’s not enough to just get the card; it needs to be used.
– Apply for a secured credit card. In basic terms, this card requires you to put up the money first, in the form of a bank certificate of deposit, and then the bank lets you borrow from 50-100 percent of your own money on their card. They are reducing their risk. If you use the card and fail to pay it back, they have right to just take your deposit; however, if you use the card and pay on time, this shows that you are responsible. Your teen could graduate to an unsecured card and their deposit will be released.
– Co-sign on an account. Your teen could also ask you or others in their life with established credit histories to co-sign on a credit card account. By co-signing, the person agrees to pay back the outstanding debt, if your teen fails to.
The biggest message that you can convey to your kids is that a credit card makes it really easy to spend money. I guess Will Rogers put it best when he said, “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.” Make sure that that message gets conveyed as well.