Tag Archives: credit card

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5 Things to Avoid Buying with a Credit Card

As much as you try to reinforce to your teens that credit cards are an adult responsibility that should only be used with proper planning and budgeting, it’s hard to deny the magical aspect of using a plastic card to buy things you need or want without having to fork over cash at the time of purchase.

The concept that you will be paying for this later, and sometimes paying more if you cannot make monthly payments and incur high interest rates, can be a difficult concept to grasp for even seasoned credit card users. Make sure your teen knows what NOT to pay for with credit cards to ensure they don’t fall into a pit of debt as soon as they head off on their own after graduation. It’s easier than cataloguing the numerous items they can buy with credit, and will at least safeguard them from buying expensive items they will never be able to realistically afford.

Here are five items your teens should never pay for with a credit card:

  1. Tuition: 

Yes, a college education is important, if not a requirement for success these days. Trouble is, the cost of college tuition is perpetually on the rise and college students are still as broke as they always have been. Due to the exorbitant costs of education, most teens receive financial help either from their parents or through scholarships and loans. But if your teen is responsible for even a portion of their tuition, they should not use a credit card to pay the bill. Many schools will add a convenience fee (roughly 2-3%) for paying with a credit card. On top of that, the amounts are so large your teen wouldn’t be able to pay off the credit card before having to start paying interest on it. If your teen is having trouble paying tuition on time, talk to the school and find out about the types of low-interest student loans, grants or work-study programs that are available to offset the cost.

  1. Vehicle:

Not every auto dealer will accept credit card payment, but the ones that do will likely charge a transaction fee of 1-2%. When you’re buying an expensive item like a car, 1-2% can add up to several hundred dollars. Also, the chances your teen has a credit card with a high enough limit to handle the initial down payment on a car are slim. More than likely, your teen would max out their cards, negatively affecting their credit score. Instead, consider borrowing from a bank or credit union. Interest rates would be around 3-4%, compared to 15% rates your teens would endure on the average credit card. Another benefit of receiving an auto loan is adding it to your credit report, which helps the health of your credit score.

  1. Medical bills:

The cost of healthcare is not cheap and paying for it with a credit card will add high interest rates to the overall bill. Your teen could wind up digging an early debt hole that could affect their future finances if they go down this road. Contact a hospital’s financial department to help your teen set up a payment plan. This result in smaller or no interest charges and give them a clear road to paying off the balance completely.

  1. Taxes:

If your teen needs to file taxes and ends up owing money to the IRS, they should not use a credit card even though it is an option. Like vehicles, taxes can end up being a large dollar amount and tax preparers will charge a convenience fee for using a credit card. The 2-3 percent fee could tack on a good amount of added money if the initial amount owed in taxes is high to begin with. Plus, interest rates on credit cards are other higher than what the IRS charges through its range of payment plans. Speak with the tax preparer to figure out the best way your teen can pay taxes or contact the IRS ahead of time to work out a payment plan.

  1. Business startup:

So your teen is using their education to begin a business. Excellent! But they use a personal credit card to expense their venture to get it off the ground. Not so excellent. This tactic is risky because it generally takes a few years for business to become profitable. In that time, your teen will pay high interest rates on those costs, effectively negating any profit from the business. Small business loans are more suitable in these situations.

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Not All Credit Cards Are Created Equal: Top 5 Credit Cards For Teens

You taught your children to walk, talk and grow up to become respectable, courteous young adults. Good job! But you’re not out of the woods yet.

As your teen enters the ranks of the high school upperclassman and ultimately leaves the nest for a college education, they will begin to acquire (and spend!) more money. To ensure teens don’t find themselves in severe debt during and especially after college, it’s important for parents to help teens create healthy spending habits and help build credit. The earlier you start the better.

What’s the best way to teach your teen about responsible spending and set them up for a successful financial future? Credit cards.

Here are five student credit card options perfectly suited for teens. None of these cards charge an annual fee and all provide nice reward incentives specifically geared toward students. (Note: The offers presented below are accurate as of date of publication and offers may change.)

1. Discover it for Students

With a ton of perks, as well as some lenient forgiveness policies, this is a great starter card for teens looking to test the credit waters. It offers a 0% APR rate for the first six months so your teen won’t accrue any interest while learning the ropes. There’s 5% cash back on rotating categories and 1% cash back on all other purchases. Not only does the cash back never expire, but the amount is doubled at the end of the first year for new card members. For parents who worry about their teens paying bills in a responsible manner, this card doesn’t charge a fee for the first late payment and won’t raise the APR for late payments. On top of all that, payments can be made up to midnight (ET) the day it’s due by phone or online, and you have the ability to freeze the account in seconds via a mobile app if the card is lost or stolen.

2. Citi ThankYou Preferred Card for College Students

Whether in high school or college, your teen is spending most of their free time hitting the books, right? Well…probably not. Fortunately, this card takes that into account, rewarding 2% cash back on dining and entertainment and 1% cash back on all other purchases. It also offers a sign up bonus and 7 months at a 0% APR introductory rate. If your teen is traveling abroad, this card has Chip Technology for global acceptance.

3. Bank Americard Credit Card for Students

The main draw of this card is a 0% APR promotion on new purchases for 15 months. So if your teen is unlikely to pay their balances in full each month, they have over a year before they begin to see those dreaded interest rate fees. Translation: Your teen can go to college and come back home after freshman year without doing any real damage to their credit or bank account.

4. Journey Student Rewards from Capital One

Perhaps a better fit for the more responsible teens in the world, this card does NOT offer a 0% APR introductory rate, meaning your teen could end up paying additional fees at a fairly lofty rate if they don’t pay the monthly bill on time. However, there are some unique incentives if they do, namely the opportunity to build good credit. After five months of on-time payments, cardholders receive a higher line of credit, which is key for teens looking to build their credit. Paying balances on time is also rewarded with a 25% bonus in cash back every month.

5. Secured card/debit card/prepaid card

If your teen is not quite ready for the responsibilities of credit card ownership (or can’t get approved for one), there are other options that can introduce them to using plastic without the risks. Secured credit cards require a security deposit equal to the credit line, assuring you can’t spend more money than you can afford. They are the quickest and easiest way to build a good credit history, as long as monthly payments are made on time in full. Debit cards and prepaid cards, like ones used strictly to buy gas, don’t build credit but teach teens that cards are linked to actual cash even if they don’t physically handle it.

Whichever card you choose, make sure your teen is a part of the decision process. This is a stepping-stone toward adulthood, so make them feel like adults! Listen to their wants and their concerns, and urge them to do some research on their own before making a selection.

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Help! Should My Teen Have More Than One Credit Card?

Now that you’ve made a decision to get your teen a credit card, and you know some of the best credit cards out there for teens, the next logical step is considering how many of those cards should be in your teen’s wallet.

This info isn’t just important for teens — but parents, too. In fact, despite the resistance from most teens to take parental advice on all matters of life, 3 in 4 teens will turn to their parents for financial guidance.* So it’s crucial that you understand how many credit cards a teen should have so that when they come to you for advice, you’re able to give it.

While one school of thought advises holding no more than two personal credit cards, others suggest opening up to eight, spread out over time. The number of cards you ultimately decide to open should depend on your situation and needs (the U.S. average is three to four). Let’s get started with the basics to help you and your teen make an informed decision.

The Good

Rewards! Different cards offer different incentives, so if you find you’re using your card primarily for gas and not receiving rewards for it, perhaps it’s time to open a card that does. Sticking to this philosophy, you might open up several cards, using each one exclusively on the item that awards bonus points or cash back. This way you can rack up rewards while simultaneously making it easier to track your finances.

For teens that are looking to buy a big-ticket item, opening a new card with a long-term 0% APR period allows them to pay it off slowly without added interest. They’ll finally be able to buy that phone, video game system, or even a car and learn how to budget their money to responsibly make the monthly payments. That’s a win-win!

The Bad

This is every parent’s worst fear: Teenager gets credit card; teenager buys item outside of budget range; teenager can’t pay monthly balance; teenager incurs massive late fees; teenager’s credit score suffers; parent must come to the rescue. Unfortunately, this scenario does play out among countless teens. In a rush to grow up, teens can dive head first-into the privileges of adulthood ill-prepared for the consequences.

Opening one credit card for a first-timer requires a lot of learning and responsibility. Having to manage multiple cards is confusing and can wind up costing a pretty penny if bills are not paid on time. With all the compounding fees, a credit card holder could end up having to shell out more money than they have, and credit scores could plummet to levels worse than someone with no credit at all.

The Ugly (Truth)

The way the credit bureau system works isn’t straightforward. In fact, it may seem counterintuitive, especially for teens who are unfamiliar with the ins and outs. In short, if you want to build and maintain good credit standing you need to have debt. Yup, that’s right. Debt is good — sort of.

You need to prove that you are a reliable borrower, which means using your credit card regularly and paying it off, while proving to be somewhat of a risk. Remember, this is a business and lenders are hoping to make money off of you! If you never use your credit cards, lenders see little value in you as a source of income.

For those who wish to play the credit game by maximizing the amount they can boost their credit scores helps to have more than one credit card. As a borrower, you are looked upon favorably if you use some but not all of your available credit. So instead of using $900 on one card with a $1,000 limit, open three cards with $1000 limits and use $300 on each. It might not be abundantly clear why, but trust us when we say it will increase your credit score.

Boosting your teen’s credit score is tricky. We don’t recommend trying to do it all at once. Instead, focus on the most important aspect of a credit score: paying bills on time!

(* Source: Survey conducted by The Futures Company on behalf of H&R Block Dollars & Sense.)

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Five Online Banking Habits Your Teen Needs

Summer jobs mean first paychecks, and so your teen might be spending a little more time at the bank than they’re used to. And while online banking is a convenient, fast and simple solution, it’s not risk-free. Teach your teen these five habits for secure online banking to avoid credit fraud and identity theft.

Create strong user IDs and passwords

Your teen may not think that creating a user ID and password for their online banking account is any different from creating a username for Twitter or Instagram. While they may be more familiar with hacked Facebook accounts than credit card theft, it’s crucial you make your teen aware of the possible consequences of weak log-in credentials.

Be sure they don’t include personal or financial information like their social security number, PIN, card numbers or birthday in their usernames or passwords. Strong passwords are lengthy and contain a variety of characters and capitalization.

Your teen’s log-in credentials should also be unique. Creating a new, different login for online banking (rather than reusing the same information for other online accounts) is an extra step to maintaining security.

Check in with your teen to make sure passwords are being updated and changed every few months or as soon as they think their account has been hacked.

Only access accounts from secure networks and locations

What network your teen uses to access online banking accounts can make all the difference in maintaining account security. Teach your teen to only connect to his or her online banking account using known, password-protected networks.

Also, let your teen know that he or she should only use his or her own computer or a family member’s computer for banking; never use a publicly available computer or a public, unsecured Wi-Fi network.

Logging out is as important as logging in

Tell your teen the importance of properly signing out when they’re finished with an online banking session.

Your teen needs to click sign out—not just close the browser tab—and clear the cache to ensure optimal security.

Babysit the account

Teens should monitor their accounts ideally every day, at minimum every few days. Checking account balances regularly and enabling notifications on the account can go a long way in both preventing and stopping any fraudulent activity in its tracks.

Keep mobile in mind

Online banking can be done safely on a mobile device. A key tip to pass on to your teen is to turn off Wi-Fi and instead use mobile data while banking for a more secure connection. If available, use a bank’s secure mobile application to access banking on the go.

The simplicity of online banking makes it a perfect fit for teens, helping them to take an active role in managing their finances and watching their savings. Teach your teen the consequences and importance of banking security, and check in to make sure that he or she is continually using these best practices.

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How Real-World Experience Can Teach Smart Spending

With summer jobs well underway, now is the perfect opportunity to teach teens the true value of their time and earnings while preparing for the school year ahead.

Watch and Learn

Electric, water and cable bills are all great teaching moments for teens. Have your teen open bills as they arrive and watch as you pay them so they become aware of the cost of services they may be taking for granted.

Test-Drive Exercises in Budgeting

Turn back-to-school shopping into a spending exercise for your teen. Hand your teen a set amount of money in cash and tell them it is the total amount they’ll get for back-to-school shopping. By giving your teen the reigns, they’ll likely think twice about the cost of each item and its value.

If the first shopping trip was a success, take the lesson a step further and have your teen purchase groceries for your family for the week on a budget. This will not only further emphasize the cost of living and the value of money, but also help hone budgeting skills.

Next Step: Credit

Teach your teen credit by having them review your credit card statements with you. Make sure to explain the statement balance versus the amount that you would eventually spend if you only paid off the minimum balance every month.

A major factor of credit score is credit history, so the sooner your teen starts using credit responsibly, the sooner they can begin to establish a strong credit history. Make sure your teen understands the financial implications of leaving balances on credit cards and the benefits of using credit responsibly.

Once your teen understands credit, craft real-world practice scenarios for him or her. Buy something for your teen “on credit,” with the premise that he or she will pay you back at the end of the month for the purchase with his or her own money. This experience will teach your teen the importance of keeping track of charges, so that they have the necessary funds saved at the end of the month to pay you back.

Be sure to reinforce the time your teen would spend at work to be able to afford each item. Respecting your teen’s independence and letting him or her see the cost of necessary expenses will help to teach your teen smart spending and prepare your teen to manage his or her finances carefully beyond high school.

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How to Help Your Teen Choose a Credit Card

Many parents shy away from giving teens credit cards, fearing they’ll rack up debt or misuse the card. But building credit history and healthy credit habits are some of the most important life-long financial skills you can teach your teen.

The first step is helping them find the right one. With thousands of credit cards to choose from, how do you know which is best for your teen? There are different ways to approach it, but consider how old your teen is and their financial standing.

Young Teens (Ages 13 to 17)

Don’t worry: Teens this young are not legally allowed to have their own credit accounts. However, this isn’t a reason to keep their credit histories blank.

Young teens can be added as either an authorized user on your credit card account, or parents can open a new credit account of which both you and your teen are joint account holders.

Both options are a great start for building your teen’s healthy credit history. You will be able to establish a credit file for your teen while maintaining control of their credit habits.

Keep in mind that any debt on the card or lazy credit habits like late payments will transfer to your teen as well, lowering their credit score. Also remember that you’re ultimately responsible for any charges your teen accrues.

Older Teens (18 and Older)

Once teens reach adulthood, there are lots of credit card options. While parents can keep their teen as an authorized user or joint account holder on one of their cards, if you feel they’ve showed they can be mature and responsible with a credit card, consider having them open their own credit card in their name. (The regulations for this vary from state to state; in some states, cardholders under the age of 21 require a parent or guardian to cosign.)

If your teen opens a card without a cosigner, urge them to opt for a card with a lower credit limit, while keeping in mind your teen’s financial situation. If your teen has multiple part-time jobs and a healthy income, then their credit limit can be a bit higher than one given to unemployed teenagers.

The next major decision will be deciding on the right card for your teen and whether they will choose a student card or a secured card.

Student cards and secured cards are the two main types of credit accounts offered to teens. A secured card sets a credit limit based on the size of a security deposit placed on the account; an unsecured student card doesn’t require a cash deposit, and is tailored to students’ needs, like lower credit limits and offer incentives aimed toward a student lifestyle, such as cash back on groceries or textbooks.

Teach your teen that card rewards are not a worthwhile reason to generate a high balance. Many teens, especially young college students, fall into the trap of spending more just to receive more airline miles or cash back.

While both student cards and secured cards are great ways for your teen to practice responsible credit and build credit, credit bureaus generally don’t see secured credit cards as favorably as unsecured student cards.

Whichever credit arrangement you decide works best, make sure your teen knows the ground rules of a credit card and the risks and benefits associated with using them.