Tips for Talking to Your Kids About Credit Cards
Young people, whether traveling on the path to college or into the workforce, will be faced with an increasing number of financial decisions. Their knowledge and attitudes about spending, savings, credit and debt will have a significant impact on their futures. Parents, more than anyone else, can help put them on the path to financial success.Benefits of using credit cards
When used properly, credit cards can be a safe, convenient way to pay for goods and services. Credit cards have several advantages:
- They are safer than carrying cash.
- They are accepted at millions of locations around the world, including online sites.
- You can purchase goods and services now, even if you don't have the money on hand.
- The credit card issuer will act on your behalf during disputes with merchants.
- If you promptly report a lost or stolen card, you won't be responsible for fraudulent purchases or withdrawals over $50; MasterCard® or VISA® cards have "zero liability" protection, which means even that $50 is waived in most cases.
- Some cards offer rewards programs for usage.
Cautions about using credit cards
Credit cards are serious financial products and need to be used with care. You should know:
- If you carry a balance you will pay interest, increasing the real cost of the items you purchase.
- You need to make sure you can afford to pay back what you charge.
- They can make impulse purchases easier, and that can add up and blow your budget.
- They require discipline about paying on time and staying within credit limits; mistakes can result in fees, interest rate increases (sometimes significant) and damage to your credit history.
Good credit is something you have to earn by demonstrating sound financial habits. Ways you can begin to establish and build strong credit include:
- Apply for a small loan and pay it off fully and on time.
- Open a credit card account and pay off the credit card balance in full each month.
- Wait until you feel confident that you are managing your spending and payments. Then ask to have the credit limit on your card increased -- but don't increase the amount you actually charge on the card. Remember, lenders like to see a lower ratio of debt to available credit.
- Before opening a credit card or loan account, make sure the lender agrees to report on-time payments to all three credit bureaus -- this will help build your credit history.
Ways to build good credit
If you are new to credit, it will take time to establish a strong credit history and earn a high credit score. The best way to do it is by using credit responsibly over time. A few suggestions include:
- Always make payments for credit cards, loans, utilities or other bills on time.
- Try to pay credit card balances in full each month; avoid making only minimum payments.
- Avoid keeping your credit card balance at or near the credit limit and don't exceed it. Consistently using most of your available credit can hurt your credit score.
- Resist applying for numerous accounts, because excessive credit inquiries by lenders can lower your score.
- Try not to make frequent balance transfers from one account to another.
- Finally, it sounds silly, but unpaid parking tickets, library fines and other fees can show up on your credit score as unpaid debts.
Brought to you by College Parents of America
Source: Parents, Teens and Money, co-sponsored by Chase and College Parents of America
