Most people first come across credit cards in their teen years, hence, it’s important for teens to learn the full implications of credit cards in order for them to avoid making costly mistakes that could affect their financial futures.
With that said, here are five things to teach your teens about credit cards;
Credit And Debit Cards Are Different
Debit cards and credit cards might look the same, but they’re inherently different. The difference between a debit card and a credit card revolves around the fact that a debit card is directly linked to the money in your bank account, while a credit card operates solely on credit.
Your credit providers extend credit to you to make some purchases, after which you pay back the loan with interest. Hence, your teens should know to only use their debit cards for cash withdrawals because cash advances made with your credit card comes with fees.
Credit Cards And Your Credit Score
Credit cards are an excellent starter for building your credit score. Your credit score is a number that portrays your credit worthiness. In simpler terms, your credit score pretty much tells credit companies and banks how likely it is you’ll be able to pay back a loan.
If your teen relative has a credit card, it’s important you teach them to never miss credit card payments as it can negatively affect their credit score, which will ultimately make it tough for you to gain eligibility for future credit facilities like a car loan or a mortgage.
Credit Card Validity
Credit cards usually have a time frame in which they remain valid and can be used to make various transactions.
This information is usually found as a four-digit code on the face of the card that tells cardholders when their credit card is set to expire.
Nevertheless, your credit card provider often sends you a new card 30-60 days before the credit card expiry date. This way, you won’t have to wait to get another credit card – you’ll always have a credit card on-hand regardless of its expiry date.
How To Choose The Right Credit Card
Nowadays, credit card companies offer unique benefits in the form of credit rewards and credit card points. Some cards even offer exclusive access to events and concerts.
It’s easy to get enticed by these offerings and choose your credit card based on the perks they offer – however, your primary metrics for choosing a credit card should be its interest rate.
You should go for cards with a low APR in opposition to choosing one based on credit card rewards. It’s worth noting that most credit cards have something called an introductory interest rate which usually lasts for 6-12 months.
The introductory rate is a generous interest rate which can be as low as 0%. It’s important for you to inform your teens that introductory interest rates don’t last forever.
You should let your teen relatives know that they should always pay up their balance as failure to do so can lead to a rise in the interest you pay on your balance.
Do Not Utilize More Than 20% Of Your Credit Limit
Teens need to know not to utilize their total credit limit as it can be detrimental to their credit history.
That’s because using more than 20% of your credit limit puts them at risk of defaulting on your credit card payments because they may spend more than they can afford to pay back which, in turn will negatively affect their credit score,
That’s why you should inform your teens to only spend 20% of their credit limit to make sure their balance is easy to pay off.