We all know how important it is to be savvy with our credit. We compare offers, shop around, avoid having too many lines of credit, and other things—all to protect our credit score. This is easier for some people to accomplish than others. The hundreds of college students that fall into deep credit card debt each year? They’re going to have a long road of bad credit ahead of them.
How can you help your teen avoid these mistakes? It’s important to introduce your teen to credit early. The sooner they can have hands on experience, the better. The trick is to get your teen used to budgeting and using credit without putting them in danger of actually damaging their credit. A prepaid card is a great jumping off point.
What is a prepaid card?
There are several different types of cards that are referred to as a prepaid card. There are prepaid gift cards, reloadable prepaid cards, and secured credit cards.
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Prepaid gift cards are the Visa or Mastercard gift cards that you might buy at a big box retailer. They’re great for gift giving, but not the most convenient since many of them aren’t reloadable.
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Reloadable prepaid credit cards are available from many banks and credit institutions. These are ideal for teaching your teen about budgeting since you can put a set amount on the card that they can spend.
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Secured credit cards are one to avoid for your teen because this will actually impact their credit score if it is mishandled. They’re a great option to discuss with your teen for the future, though, because there are some available with no annual fees and low APR’s.
Which prepaid credit card should I use?
All prepaid cards are not created equal. Look for one from a major institution, like Visa, because they’re less likely to stick you with hidden fees when you load your teen’s card. The wrong prepaid card may charge you $2 for everything you do, from a monthly fee to loading the card or withdrawing funds from an ATM. Not all of them do, however, so shop around.
To get the most out of your teaching moments, you’ll want to get a prepaid credit card with comprehensive online reporting. If you and your teen can’t see where the money is going, it’s much harder to discuss budgeting and smart-spending.
Taking the conversation further
Encourage your teen to look for beneficial lines of credit with minimal risk. Explain that the better their credit score is, the better the credit they can receive. Although their first credit card will probably have unfavorable terms (such as high interest), encourage them to shop around instead of just accepting any credit card offer that comes in the mail.
With a bit of planning and forethought, you can help set your teen up for financial success!
