Credit Cards for Teens and Students
Credit Cards for Teens and Students
I started out with a Capital One credit card as a teenager; I still have a credit card with them to date, though I've upgraded. It's still my longest-held open account. Honestly, I... did not do well with that kind of power. I crashed and burned. I can feel the judgement on this subject. You likely had the same response as so many of us did with our first credit card. Can we agree that it was a painful learning experience? The great news is, that pain can be avoided.
When it comes to building credit, longevity is a factor. Starting a teen when they have a consistent paying job is an overlooked tactic. Though some teens may not be responsible, like younger me, there are other options I'll mention later.
Some Benefits:
- Having good credit enables independence.
- Independence can look like
- More favorable interest rates applying for loans such as vehicle or student loans
- Car insurance rates
- More favorable rental agreements and deposits on utilities
- Financial Education is learned: budgeting, Interest rates, annual fees, penalties, due dates
- Using a credit card vs a debit card keeps the checking account safe from fraud
- There can be a 3-10 day delay on getting a replacement debit card
Prework:
- Pull your child's credit report. This will identify if your child was a victim of identity fraud. If so, you can start damage control. Note: You cannot typically access a minor's credit report online, as the Children's Online Privacy Protection Act restricts the online collection of personal information regarding children
What I look for in a credit card:
- $0 annual fee
- Cash-back offers
- Credit monitoring
- Quality customer service
- Well-known bank backing
Pick a Credit Card:
Nerd Wallet has compiled a pretty nice list that you can see here.
Here are my personal favorites:
- Capital One has a Credit Wise app that tracks your credit month over month using a soft pull. It offers detailed tips to increase your credit.
- Chase Credit Card also offers credit monitoring and tips through Chase Credit Journey. They're on my top list for their bonus cash back options, no annual fee and pay over time plans for large purchases.
- Bilt is my new favorite because it allows you to earn cash back for paying your rent. Talk about a way to build credit!
Referral Links:
What did I do with my kids?
- I pull my child's credit report to ensure no fraud is detected
- I choose a credit card I or my husband owns:
- that is not being used except for small purchases to keep the card active
- that has a large available balance
- at 16 they are added as an authorized signer, though some cards allow as early as 13 years old.
- After the card arrives and is activated, a credit freeze is applied through the credit bureaus
- The credit card is not given to the child to use.
- When they began getting paid at 16, a checking account was opened and they are given a debit card. We both have access to the account so I can monitor alongside them.
- They are encouraged to tithe 10% and save 10% into a savings account; the rest is spending.
- When their savings reach a decent amount, it is transferred to a money market or high-yield savings account.
- During senior year of high school, their credit report is pulled again to ensure no fraud is detected. We need time to dispute if anything is found.
- After graduation and life decisions have been made (to move or stay home)....the credit freeze is temporarily removed to apply for a credit card of their choosing. Credit is applied on their own without a co-signer
- If credit cards are not favorable, move to Plan B
- Plan B: Apply for a personal loan with current banking institution, informing them the purpose is to build credit.
- Apply for an amount the child has in savings.
- Have monthly payments auto draft from savings account
- When loan is paid off, repeat process asking for a larger balance each time. May do this for a year or two.
- Check credit score annually (free) for a more favorable score to apply for a credit card.
My kids credit card rules
At this point they're adults so it's more like suggestions to avoid my mistakes
- Use your credit card like a debit card. You'd typically only swipe if the money is in your checking account (i.e don't spend more than you have).
- Pay your current balance in full with each paycheck.
- This trick avoids overspending and interest/penalty fees
- Set up autopayments if there are forgetful tendencies.
- Missed payments can increase your interest rate.
- Be mindful of the terminals where your card is used, especially gas stations
- Utilize the credit card's credit monitoring system and take immediate action if unauthorized transactions are found.
- Communicate if bad habits creep in, like overspending or missed payments.
- The bigger the snowball gets, the harder it is to stop
- Establish a credit HOLD if needed until issue is resolved and re-assess.
- Not credit card specific: If you can't afford the tip; you can't afford the food/drink
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