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Tips on Showing Your Child How to Use Credit Wisely

By
Mortgage and Lending with Jamie Russen - Greentree Mortgage NMLS ID #95705

Starting back in February 2010, persons under the age of 21 will no longer be able to get a credit card WITHOUT an adult co-signer - or PROOF that they have the income to repay the credit card. 

In the past, credit card companies rushed to college Campuses (even some high schools) to sign up Students who had no visible means of ever repaying the credit card.  Since they had no income to even make the minimum payments-it's ruined their credit for many years to come.

Ideally, you might want to start the process when your child reaches age 16. Even if you consider co-signing a credit card for your child, there are a couple of steps you can take so make sure they understand how to use credit cards wisely.

Step 1 - Open up a checking account and ask for a debit card to include with the account.  Review how much is in the account, how much they have to spend and talk with them about overdraft fees if they take out more money than is in the account.  If they manage that responsibly for 6 months (to a year), go to the next step.

 Step 2 - Add your child as an "authorized user" to YOUR credit card account.  He or she will get a credit card with their name on it and they will start to establish their own credit history.  Set a limit.  Determine who will pay for the charge and how.  Do that for 6 months or more and if they don't comply remove them from the card and have a good heart-to-heart talk about spending, budgeting and credit scores.

 Step 3 - If they have demonstrated that they can handle a credit card responsibly, you might want to co-sign on the credit card with them.  Make them accountable. Ask them to share the charges and repayment terms with you.  Create a User Name and Password so you can also watch what's happening online.  Show them how to do the same.

 Remember, as a co-signer, you are on the hook, too and if they fail to make payments, it reflects on your credit, too.

 

Show All Comments Sort:
Mary Stewart
HomeTrust Real Estate, LLC, Homes for Everyone - Wilsonville, OR
Wilsonville and Surrounding Portland Metro Areas

These are really good guidelines for helping your teenager with learning the responsibilities of finance and also an introduction into the adult world.  It would be helpful as well for the teen to have some kind of job so they can put their own money into their checking account.  My bank has teen accounts and that is a good thing.  The one thing I did not know was that as of last February they changed this and one had to have a co-signer under the age of 21.  When I was just 18 (many many years ago) I wanted a charge card at the local department store called Meier and Frank, which is now Macy's.  My mother had to co-sign and the limit was $100.  That was in 1964 and I kept that account all of these years.  She was off the card in a very short time, but it surely made me accountable.  Thanks for the good information.

Feb 03, 2011 07:59 AM
Olga Diaz
COLDWELL BANKER TOMLINSON - Pullman, WA
Potter, Mng Broker, CRS, ASP, ePRO, ABR

Good idea Jamie.  I was always shocked when my young daughters received credit card offers.  I agree with Mary that they should work as well so they can see how it all works together.  Have a great rest of the day.

Feb 03, 2011 08:49 AM
Jamie Russen
Jamie Russen - Greentree Mortgage - Voorhees, NJ
100% Financing Specialist

Thanks for the comments Olga and Mary. I'll never forget my first week at college. I can't even begin to tell you the amount of credit card offers we all recieved!

Feb 03, 2011 09:48 AM
Martina Perkins
Brazos National Bank - Arlington, TX

That is very good advice!  I believe that legislation was necessary to protect our young people.  I would just like to add that Dave Ramsey has Financial Peace Jr., that is very good for young children as well.

Feb 03, 2011 12:50 PM