Teens today are starting their own credit history at earlier and earlier ages. Credit card companies are eager to extend credit to young college students, and teens are eager to establish independence. It is important that parents talk to their teenage sons and daughters about credit reports and credit history before the youngsters seek their own credit accounts to prevent long-term credit damage due to inexperience.
Talk to your teen about the affects of overdrafts, late payments, and default on credit history. Show your teen a credit card bill and explain terms such as interest rate, APR, monthly payment, and late fees. Explain what happens to the account, interest rates, and credit report if the teen fails to make one monthly payment. Describe what could happen if irresponsible financial decisions cause a need to file for bankruptcy, and the long-term credit effects of solutions such as bankruptcy.
Opening a credit account is a great way for a responsible teen to start a credit history. Without a credit history, it is difficult to purchase a first car, get a first apartment, or even get a cell phone contract. A good credit report that shows a limited but responsible credit history is a great foundation on which to start building a solid financial history.