14 Credit Card Tips for Teens: Understanding Credit Cards for Teens
When you think about your teen with his own credit card, you may think it’s a recipe for disaster. But credit cards for teens can actually be great learning tools in the world of personal finance.
Teens can learn financial responsibility as well as what it’s like to have a monthly payment they’re responsible for and what happens when you don’t pay their bills.
If you’re thinking about getting your teen his first credit card but aren’t sure how to do it or what type of credit card to get, we’ve got you covered. We’re going to share some tips on to introduce your teen to the world of credit as well as the best cards to get them started.
Related: Helping Your Teen with College Loans, Saving, and Moving Out
Explaining How Credit Cards Work to Teens
Getting your first credit card in high school might seem like something only rich or irresponsible parents do in teen movies, but actually understanding how to use and pay off a credit card during their high school years may be valuable practice for when your child goes off to college and has to learn how to be responsible for their personal finances.
College students often struggle to create budgets for the first time, and if they’re not taught the basics of money management they may blow their bank account the first semester on Uber Eats and going out with friends every weekend.
Before entering into the scary world of understanding student loan debt or car loans, here are the important things teens need to know about getting their first credit card.
1. Credit Cards are Not Play Money
The first thing to explain to your teen is that credit cards are not free money or play money for teens. Many teens are under the impression that when they pay for something with a credit card, the item is paid for and that’s the end of it. Wouldn’t that be great if it were true?
Obviously, that’s not the case.
The first thing to make clear to your teen before they start using a credit card is that all the purchases they’re making must be paid back. It’s just like borrowing money from a friend. Except that banks aren’t as understanding. Real cash will eventually come out of their pocket. If your teen doesn’t grasp this concept, he’ll be dealing with credit card debt before he knows it.
2. Parents Can Add Children as Authorized Users on Their Credit Accounts
If your card issuer reports information to the credit bureaus, you may want to think about adding your teen to your account. If they’re responsible, it can help them build a credit history and a good credit score. It can also help yours. But, if they’re irresponsible, it can hurt both of you. So, you need to decide if that’s a gamble you’re willing to take.
3. Look Into Student or Secured Credit Cards
Kids have to be at least 18 years to open a credit card in their name. If they’re under 21, they’ll have to prove they can make the monthly minimum payments on the account. If they can’t, they’ll need a co-signer on their credit card application, A.K.A. you! This is why some parents start with secured cards for their teens.
A secured card requires money to be deposited with the credit card issuer for the account to be opened. The credit card issuer holds the money while the account is open. It’s similar to a security deposit that a landlord collects.
In some cases, the deposit amount sets the credit limit. In other cases, you may be able to get a higher credit limit. The idea here is that your teen can avoid overspending and ruining their credit score.
4. Open a Checking Account in Your Teen's Name
Opening a checking account in your teen’s name is a good way to help them handle money and build their credit in the future. Most checking accounts come with a debit card which is also important to learn how to use and helps teach them money management skills.
The checking account can also allow your teen to pay their monthly credit card payment and build their credit that way.
Tips for Teens with Credit Cards
Here are some valuable tips to teach teens to understand how to use a credit card responsibly so they don’t end up with tons of credit card debt. The earlier parents teach kids the value of money the more likely they are to save and spend responsibly once they start earning their own paycheck.
1. Explain Your Bills and Budget
This might sound scary, but showing your teen your actual bills, expenses, and monthly budget can help him understand adult finances. Sit down with him and go through the cycle of cash flow in your household. Then give him a teen budget worksheet to help track his money.
2. Set Spending Limits and Guidelines for Use
Discuss what types of purchases and payments your teen should use his credit card for. Decide on a cap for how much he spends each month and how you'll monitor what he buys. If you're footing the bill or are a co-signer for the card, then your child should clear any purchases with you before making them.
3. Avoid Online Shopping Sprees
Using a credit card to shop online can make the loss of that cash seem less real than shopping in person. Shopping online at sites like Amazon make it easy to click add to cart over and over again without realizing how much you’re actually spending. But reality will set in once the monthly bill comes. Keep track of your teen's online purchases to keep them under control.
4. Keep a Calendar of Payment Dates for Bills
Payment due dates can sneak up quickly. Have your teen keep a calendar of credit card payment deadlines and try to make his payment at least a week before to avoid late fees.
5. Show Them What a Payment Looks Like in Cash
You most likely pay your credit card bill online nowadays, but transferring money out of your checking account somehow doesn’t feel quite as big as seeing the full payment in cash. For their first credit card payment, show your teen the actual amount of cash they’re parting with each month. Especially if your son or daughter is paying off their charges with money from chores or their first job, they’ll begin to appreciate the value of every daughter.
Best Credit Card Options for Teens
Choosing the right first credit card for teens can be confusing. Nowadays every business offers its own credit card and a special set of rewards and perks.
With some research, you can find a great deal on a card with cashback for whatever your teen spends the most on whether that be concert tickets, travel, food, gym memberships or more!
If you’re ready to get a credit card for your teen, here are some of the best credit cards for teens out there:
1. Petal 2 Visa Credit Card
The Petal 2 Visa Credit Card has no annual fees, no late fees, and no foreign transaction fees. No credit history or security deposit is required. Plus, you get rewards! Cardholders begin by receiving 1% cash back on all purchases but can earn up to 1.5% cash back after making on-time payments. The card also comes with a money-management tool to help your teen track their spending.
2. Capitol One Platinum Secured Credit Card
With the Capital One Platinum Secured Credit Card, your teen can get an initial credit limit of $200 with a security deposit as low as $49. If you want your teen to have a higher credit limit, just make a larger security deposit.
The Capital One Platinum Secured Credit Card is great for teens who are trying to build their credit. Credit activity will be reported to all three major credit bureaus.
3. Chase Freedom Student Credit Card
There is no annual fee with the Chase Freedom Student Credit Card. Teens get a $50 bonus for signing up and making one purchase during the first three months. If the account is in good standing, cardholders get a $20 reward for each account anniversary for up to 5 years.
4. Discover it® Student Chrome
The Discover it Student Chrome card has no penalty interest rate and will automatically waive your first late payment fee. There is also no annual fee and no foreign transaction fees.
Teens can receive a $20 statement credit each school year with a GPA of 3.0 or higher. Plus, this card offers 2% cash back at gas stations and restaurants on up to $1,000 in combined spending each quarter. Users get 1% back on all other purchases.
The Bottom Line on Credit Cards for Teens
When it comes to credit cards for teens, the most important thing is to teach responsibility. Let them know the ins and outs of using the card and the consequences of abusing the card. You’ll also want to set limits as you help them establish good credit.
There are several good credit cards for teens to choose from if they’re just getting started. Determine which one is best for your teen and be sure to always monitor their transactions.
For even more tips on how to teach your teens to manage their money, here are 5 Steps to Teach Your Teens Budgeting.
