Credit cards allow teens to begin building their credit. A credit card allows them to earn rewards, build up their credit history, and learn how they can manage their finances responsibly.
How to Create a Teenage Credit Card
In the early years of your teen years, it's hard to know how to get started with financial responsibility. By laying the foundation for your teenager early on, you will ensure that they have the tools to build their credit as adults.
Step 1 Open a bank account for teenagers
It is important to open a bank and use it before applying for a credit card. This will help them learn the basics about budgeting, paying their bills on time and how to avoid debt. 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. You can also discuss the importance to make payments on time. A late payment will affect your credit score.
You can help your teenager build credit by adding them as authorized users to your account. This will allow them to use your credit card to make purchases under your name. You should be aware that certain creditors may have an age restriction for authorized users under the legal age of 18. Check with your creditor before adding your teenager.
Step 2 - Have them pay the bill on time
This is a good way to instill responsibility into your teenager. They can also establish a good payment history and demonstrate to credit bureaus their ability to pay.
Step 3: Set a spending limit for the card
Consider giving your teen a card with a maximum spending limit. This will let them know how much money they have to spend, while allowing you to watch their spending more closely.
Step 4: Talk to them about their finances
After your teen receives a card, it is important to keep track of its usage and communicate with him about his financial goals and budget. This allows your teen to learn from you and ask questions.
Ultimately, you should choose the right credit card for your teen based on their needs and goals. You can also find cards that come with added benefits to help your teen earn cash back and airline miles, while also helping them build credit at the same time.