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Charging Forward: 3 Avoidable Teenage Credit Card Mistakes

Charging Forward: 3 Avoidable Teenage Credit Card Mistakes

At some point, you might start to wonder, “Should my kid get a credit card?” You might be hesitant because you’ve heard the horror stories of teens who rack up thousands of dollars of credit card debt. But we live in an increasingly cashless society, so it’s a good idea to teach your child how to use credit cards responsibly.

Here are three teenage credit card mistakes parents often make — and how you can avoid them.

Mistake 1: Not Teaching Your Teen About The Pitfalls Of Credit Cards

One of the biggest mistakes you can make is simply giving your teenager a credit card — and that’s it. No lecture, no warnings.

You might have been modeling credit card behavior for the past 18 years of your teen’s life, but he or she likely doesn’t understand what it all means.

Involve your teen in what you’re doing when you pay for groceries or purchase new clothes. At the end of the month, review your credit card statement together, so your teen can see how the charges show up on a credit card statement.

As you review together, you can explain what interest is and the effects of not paying your monthly bill in its entirety each month. By doing this, you can set a good example of healthy credit card spending.

Mistake 2: Giving Teens Unlimited Charging Privileges

Handing over your credit card with no rules or limitations could be a disaster. Credit cards from major lenders like Chase (NYSE: JPM) or Citibank (NYSE: C) will allow you to add your child as an authorized user to your account. That means your child is legally able to use the credit card — but when it comes down to it, it’s important to remember that you’ll ultimately be financially responsible for any charges your son or daughter makes, even if you’ve arranged for your child to make those payments.

Be sure to establish clear guidelines.

You might want to consider setting a clear charge limit. Go through the bill with your child each month and if you find that he or she goes over the limit, he or she may lose credit card privileges.

Mistake 3: Sending Your Teen To College Without Credit Card Guidelines

You might think that once your teen is old enough to go to college, he or she is ready for the real world — and that includes the ability to use a credit card. While this might be true, you should still have a serious talk with your child about what abusing credit cards can do to your credit.

Credit utilization, or the ratio of your outstanding credit balances to your credit limits, accounts for 30% of your FICO (NYSE: FICO) score. Only making the minimum payments each month and continuing to use the credit card for additional purchases over the month could cause your credit score to suffer.

Consider Other Options

You can also set your teen up with a prepaid credit card, which works like a gift card. You can load money into an account and your child can only spend what’s in the account. Doing this can curb problems if your teen does overspend and can’t afford the monthly payments.

Giving your teenager a credit card doesn’t have to end poorly. Teach your teen how to use a credit card responsibly and you’ll set your teen — and you — up for success.

Posted-In: Education Personal Finance General Best of Benzinga


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