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Almost every day an article is written, or a news report is broadcast somewhere about the trouble many US college students are in with credit card debt. New laws enacted with the Credit Act of 2009 made it a little harder for teens over the age of 18 to get a credit card but it is still perfectly possible. And actually, if you talking about teens with a job credit cards may be more readily available than ever. So the question is is there ever a time when it is OK, or even a good idea, for teens to have credit cards?
Credit Cards and High School Seniors
There are a great many high school seniors whose eighteenth birthday comes along months before they graduate from high school. In the US 18 is the youngest you can be to get a credit card (or a “real” credit card anyway) so technically a high school senior can actually hold a credit card of their own.
There are several obstacles to them doing so though. The first is their credit rating. Very few teens have a credit rating at 18 even if they have been working part time for a few years which many of them have. The work around there is generally getting Mom or Dad to cosign for them.
The Credit Act of 2009 did change one thing related to teen credit cards in a bigger way though. In order for a credit card to actually be issued in a teen’s name they must have a source of income, they can no longer just rely on Mom and/or Dad’s, even if they cosign. If that is not the case the best they can hope for is an additional card on their parent’s account – something that will no longer help a teen build their credit rating as it did in years gone by.
Again there is a workaround here. A lot of 18 year olds do have jobs, even if they are in high school. In a down economy there is still a need for bag boys and girls, camp counselors, fast food restaurant staff and many other jobs where teens are still the preferred hiring choice. So they can meet the income requirement, even if their credit limit is low, which it will tend to be at first (which is actually a good thing in many ways).
So should a high school student have a credit card like this? If it is something that is watched carefully and they have a low limit yes, quite possibly. There is no doubt that the faster you can build a good credit rating the better. A good credit rating is required for a car loan – many a young person’s first priority – and a mortgage a little further down the road perhaps. Sensible credit card spending can do just that, but only if it is sensible. That means paying off balances as quickly as possible, making payments on time and not going over the credit limit.
Another alternative teaching tool for teens as young as 13 is a prepaid credit card. Special teen prepaid credit cards are issued in a teens name, funded by others or with their own money (in some cases even by employer direct deposit if it is offered and the teen has a job) and the account can be monitored by both parties. These cards are almost like “training wheels” for teens learning about money management and they can be very useful for helping teens demonstrate good financial management habits. And some of them, like the American Express Pass card, even come with a rewards program attached!
Credit Cards and College Students
It is often once they are away from home and in college that teens begin to get into trouble with credit cards. Many parents actually like that their kids have a credit card in college, so that they have source of emergency money when they are so far from home, although services like Paypal have made it fast and affordable to send money literally in seconds and if a kid has a Paypal debit card attached to their account they have access to that cash in seconds too.
But once again there is the building credit issue. In order to survive in college in the first place a lot of college students have a job so they too can meet the income requirement of the Credit Act of 2009 (they can no longer use their loan funds as income as was once the case) and entering the world of work at 21 or 22 with a credit score that is decent can be a big, big help to a young person.
If you are are a college student, or have a child that is one, it pays to shop carefully for a credit card. Rewards credit cards seem very, very appealing to many college students. Free music, free concert tickets, free video games – sounds great. However even mature adults can be tempted to overspend to reap the spoils offered by rewards credit cards so a low APR card may be a better choice.
In answering the question “should a teen have a credit card?” there is no clear cut answer. The level of student credit card debt demonstrates that a great many students simply do not have the discipline to be financially responsible with a credit card and get themselves of to a rather bad start in the real world – financially at least. Basically credit cards for teens can be a great idea but only if managed responsibly and that involves parental guidance. The average 18 year old likes to think they are grown up and they may indeed be very mature but they still need a little help and advice sometimes!