What Every Teenager Should Know About Credit Cards
As teenagers, you can learn the risk and danger of credit card debt before ever having a card in your hands. Teenagers and credit cards is a controversial topic in the financial field. Some people advise teenagers get a credit card, so you can learn them how to use it responsibly while others believe that is like giving them a ticking time bomb. Either way, teens can learn the concepts of credit card, debt and credit scores before that decision has to be made.
It is important to note that with the passing of the Credit Card Act of 2009 an individual must be twenty one years of age before you can have a credit card solely in their name unless they can prove the ability to make the payments with a viable and solid income. Before that, they must have a parent co-sign and accept responsibility for that card.
There are many concepts involved with credit cards, but there are a few basic ones every teenager should learn.
- The first thing you need to know is that when you sign your name to a credit card contract, you are agreeing to be contractually bound to the terms and conditions specified. It is essential you realize the importance of reading the fine print and what you are agreeing to before you sign. Many credit card companies offer low introductory interest rates for a short period of time to lure in customers and then raise the interest rate higher six or twelve months later. When a purchase is made on the credit card, the card holder has contractually agreed to pay the amount back plus interest.
- You also need to realize that in failing to repay the credit card debt, you are setting yourselves up for long-term disaster. Unpaid credit card bills quickly snowball into late fees, over-the-limit-fees and cancellation charges. You need to realize every time you fail to pay your monthly minimum, it damages your credit score. Most teenagers have no idea there is a record and history of all their debts and payments. Credit scores can be quickly damaged and are extremely hard to repair. Teenagers should be improving credit scores and building their credit history rather than ruining it before you ever really begin living.
- It is also important to understand deceptive terms used by the credit card company. For one example, the term grace period may seem like they are cutting you slack, but in reality, not paying the credit card when it is due hurts your credit score and accrues interest at a higher rate. Paying the monthly minimum is also deceptive as it only pays a small percent to the principle and the rest is just going towards paying the interest. Credit cards should never be used for big ticket purchases, it is always better to save for more expensive items and pay for them outright. Use credit cards for smaller items or for putting gas in your car, this allows you to keep a smaller balance which is easier to manage and to pay back.
If you decide to get a credit card, consider getting a prepaid credit card or a debit card attached to a personal checking account before obtaining a line of credit. Prepaid credit cards typically have higher fees than standard credit cards, but that can be a good learning experience. It is important you understand it always costs more to borrow money. High interest credit card debt can keep you from experiencing financial freedom and keep you in debt for years.
Learning about credit cards, improving credit scores and building positive credit history can seem overwhelming at times. However, when you break down the concepts and see how they can affect you in the long-term, it can save you from making catastrophic financial decisions while you are young and have a clean credit history.
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