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 get a teenage credit card
It can be difficult to know where to begin when you are a teenager and it comes to financial responsibility. If you lay the foundations early, your teen will have all the tools necessary to build his or her 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 teen-friendly options that come with features such as a free teen debit card and online banking.
Your teen should be guided through the account opening process, explaining to them what qualifies for an approved card application and how to use it. Disclose the consequences of late payments and explain how they can hurt your teen's credit rating.
Adding them as an authorized user to your account is another way to help your teen build their credit by allowing them to make purchases in your name and using your credit line. It's important to note that some creditors restrict underage authorized user, so check with them prior to adding your teen.
Step 2: Make sure they pay on time
Having your teen pay the credit card bill in their name is an excellent way to teach them about the importance of responsibility. It also helps them establish a payment record and show the credit bureaus that they're able to pay their bills.
Step 3 - Set spending limits to the card
Consider giving your teenager a credit card that has a limit on how much they can spend. This will allow them to know what they can comfortably afford, and it allows you to closely monitor their usage of the credit card.
Step 4 - Check on their finances
It's crucial to monitor your teen's credit card usage, and ask them regularly about their financial goals and budget. It will give your teen the opportunity to learn 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.