Credit cards can help teens build credit. They are especially useful for those who don't have much cash or have low income. A credit card will help them build a credit history and earn rewards on their purchases, as well as teach them how to handle their money responsibly.
How to Create a Teenage Credit Card
Financial responsibility can be a difficult thing to learn as a teenager. Set the foundation early to ensure your teen is equipped with the tools needed to build their credit.
Step 1: Open a checking account for your teenager
By opening a savings account and paying your bills on time, you can teach them the basics of budgeting and debt avoidance. Many banks offer options for teens that include features like a free debit card or online banking.
Talk to your teen about the opening of an account. Discuss what qualifies as an approved application. Also, explain how they can make purchases with their new credit card. Discuss the importance of paying on time, and how late payments can affect their credit score.
Adding your teen as an authorized account user is another great way to build your teen's credit. They can make purchases on your behalf and use your credit line. Some creditors will have age restrictions that apply to underage authorized accounts, so be sure to check before you add them.
Step 2: Make sure they pay on time
You can teach your teen the value of responsibility by having them pay their credit card bill. It helps them to establish a credit record, and it shows the credit agencies that they are able pay their bills.
Step 3: Set a spending limit for the card
Consider giving your teen a card with a maximum spending limit. This will help them to understand what they can spend, and you'll be able to keep a closer eye on their card usage.
Step 4 - Check on their finances
When your teenager has a debit or credit card, be sure to check on them and their finances. This allows your teen to learn from you and ask questions.
The best credit cards for teens are those that meet their goals and needs. There are also cards with additional benefits that help your teen build credit and earn airline miles or cash back.