Best Cards Summary
Bank of America® Cash Rewards Credit Card for Students
Why this is one of the best student credit cards: This card offers students flexibility with earning rewards, offering 3% cash back on a choice of gas, online shopping, dining, travel, drugstores, or home improvement and furnishings. Purchases at grocery stores and wholesale clubs earn 2% cash back, and all other purchases earn 1% back. The 3% and 2% cash back rewards apply to the first $2,500 in combined card purchases each quarter; thereafter, you’ll earn 1% back until the next quarter. Cardholders do not pay an annual fee.
Discover it® Student Cash Back
Why this is one of the best student credit cards: The Discover it Student Cash Back Card is good for students who want to earn cash back on everyday purchases. Students have a chance to earn 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay using PayPal, up to the quarterly maximum when you activate. The card offers unlimited 1% cash back on all other purchases. Discover will match all the cash back you’ve earned after your first year. There’s no annual fee and no late fee the first time you pay late.
Chase Freedom Unlimited®
Why this is one of the best student credit cards: The Chase Freedom Unlimited Card earns 5% cash back on grocery store purchases (excluding Target and Walmart) on up to $12,000 spent in the first year, 5% cash back on travel purchased through Chase Ultimate Rewards, and 3% cash back on dining and drugstore purchases. Cardholders earn a flat rate of 1.5% cash back on all other purchases. There’s no annual fee and no minimum cash back amount required to redeem. When you spend $500 in the first three months, you can earn a $200 introductory cash back bonus.
Discover it® Student chrome
Why this is one of the best student credit cards: This card is designed for students who primarily spend on gas and dining. Cardmembers earn 2% cash back at gas stations and restaurants, on up to $1,000 in combined purchases each quarter. All other purchases earn unlimited 1% cash back. Discover will match all the cash back you’ve earned after your first year.
Journey Student Rewards from Capital One
Why this is one of the best student credit cards: This card offers unlimited 1% cash back on all purchases, which you could increase to 1.25% cash back when you pay your bill on time each month. This card is designed for students who are just beginning to build credit. There’s no annual fee and no foreign transaction fee for this card.
Discover it® Secured
Why this is one of the best student credit cards: The Discover it Secured Card is also designed for students who are ready to start building credit. This card requires a minimum $200 cash deposit to open but your deposit is refundable. Even better, you can earn 2% cash back at gas stations and restaurants on up to the first $1,000 in combined purchases each quarter, along with 1% cash back on all other purchases. Discover matches all the cash back earned in your first year and there’s no annual fee.
Wells Fargo Cash Back College Card
Why this is one of the best student credit cards: College students who are new to credit can earn 3% cash back on up to $2,500 in gas, grocery and drugstore purchases made in the first six months with this card. Other purchases earn 1% cash rewards, plus the card charges no annual fee. Students also have access to free credit management tools through Wells Fargo online.
Bank of America® Travel Rewards Credit Card for Students
Why this is one of the best student credit cards: Students can earn 1.5 points per dollar spent on all purchases with no caps. You can redeem points for statement credits toward flights, hotels, rental cars, vacation packages and other travel expenses, and blackout dates or restrictions do not apply. If you make at least $1,000 in purchases within the first 90 days of opening an account, you can earn 25,000 bonus points. The card charges neither an annual fee nor a foreign transaction fee.
What You Can Expect From Student Credit Cards
Here’s what you should know about student credit cards:
Annual fee: None of the student cards surveyed charge an annual fee.
APR: Most student credit cards have a minimum APR of 18% or lower, but 20% have a minimum APR higher than 25%.
Rewards: All but one of the student cards surveyed earn rewards, but earning rates vary. With 60% of student credit cards, you can earn at least two points per dollar or 2% cash back on bonus categories.
U.S. News Survey: College Students May Use Credit Cards to Build Credit, but Many Are Carrying a Balance
Building credit is the top reason college students obtain credit cards, but they often don’t use them for everyday purchases, according to a U.S. News survey of college students with credit cards. Carrying a balance could be a concern, and for good reason: About half of the students surveyed don’t pay their credit card balances in full each month.
- Interest rate was the most important feature the college students surveyed considered when choosing a credit card.
- Only about a quarter of respondents made a credit card their No. 1 go-to for everyday expenses.
- About 35% of surveyed college students cited building credit as the main reason they applied for a credit card.
- Only about 25% of respondents had been active authorized users of credit cards before getting their own.
- A majority of the college students said they were taught about at least one financial topic before getting a credit card.
- Asked which worried them most, the college students chose student loan debt about as much as credit card debt, but nearly 35% weren’t concerned about either.
- About 13% of the students said they had more than $8,000 in revolving credit card debt, and nearly 23% said they didn’t know how much credit card debt they had.
- But almost half of respondents were optimistic about paying off credit card debt, expecting to do so within two months or less.
College students with credit cards apparently value interest rate above all other features.
About 33% of respondents said interest rate was the most important feature when choosing a credit card, followed by rewards, annual fee and cardholder benefits. Likelihood of approval was the most important feature for almost 12% of respondents.
Being aware of your card’s interest rate is a good move, but budgeting to pay off balances in full is better.
Only about half (51%) of responding college students with credit cards said they usually pay their full balance each month. Any balance you carry month to month is subject to interest charges unless you’re within a 0% annual percentage rate introductory period.
About 9% of respondents said they usually pay less than the minimum or sometimes miss payments. Any time you pay less than the minimum or completely miss a payment, your payment is considered late, and you’ll be assessed a late fee along with interest charges and other applicable penalties.
Many students surveyed had $2,000 or less in revolving credit card debt, but some had more than $8,000, or didn’t know how much credit card debt they had.
About 23% of respondents said they don’t know how much credit card debt they had, and approximately 13% said they had more than $8,000 in revolving credit card debt. But almost 42% said they had just $2,000 or less of revolving credit card debt.
Respondents were overall optimistic about paying off credit card debt.
About 69% of the students surveyed expected to pay off their credit card debt in less than 12 months, and about 48% planned to do so within two months or less. But nearly 21% said they expected to take 18 months or more to pay off credit card debt.
If you think it will take several months to pay off credit card debt, it’s a good idea to consider a balance transfer credit card. This type of card can give you time to clear your balance interest free with a 0% APR balance transfer offer.
Debit cards outpaced credit cards and other forms of payment, even among respondents who had credit cards.
The college students surveyed had credit cards, but only about 26% of them used their credit card most often for everyday expenses. Almost 40% used a debit card the most.
Students could be wary of putting regular purchases on credit cards, where there’s potential to build debt, but debit cards come with their own risks. Credit cards are safer than debit cards, offering greater fraud protection and a buffer between thieves and your bank account.
Building credit was a top priority among responding college students with credit cards.
For nearly 35% of college students with credit cards surveyed, building credit was the main reason they applied for a card. Convenience, earning rewards and covering emergencies were other leading considerations.
One way to build credit is becoming an authorized user on another person’s credit card. However, about 75% of the college students surveyed said they didn’t do that before getting their own cards.
Most college students surveyed learned about at least one financial topic before getting a credit card.
Though about 35% of survey respondents said they didn’t learn about certain key financial topics before they got a credit card, many others apparently learned about at least one. More respondents said they learned how to use a credit card responsibly than any other topic, followed by creating a budget, how interest is calculated, understanding monthly statements, preventing identity theft and fraud, and how credit scores are calculated.
Credit card debt and student loans were about equally concerning, but some students surveyed weren’t worried about either.
Both student loans and credit cards have the potential to limit you financially when you graduate from college. About 34% of survey respondents said they’re more concerned with student loan debt than credit card debt, but almost 32% cited credit card debt as more of a concern. For 35% of college students surveyed, neither was a concern.
How Can Students Use Credit Cards?
When you get your first credit card, your credit limit will likely be very low. Some student credit cards will increase your limit if you make your first five or six payments on time. But for right now, a low credit limit is a good place to start while you’re learning the ropes.
Your payment history makes up 35% of your FICO score, so to build a great credit history, you must pay all of your bills on time. After you prove you’re responsible with credit, you may qualify for credit cards that offer a larger credit line or have your credit line increased on existing accounts.
Why Should College Students Have a Credit Card?
Using credit cards responsibly allows college students to build a credit history, which can make life after college easier and more affordable.
Some employers conduct background credit checks on potential hires, especially for jobs that require they have access to financial or other sensitive information. Employers won’t have access to your credit score, but they can view your credit report if allowed by their state. Some states have restricted or prohibited employers from using credit background checks in the hiring process.
If a potential employer does look at your credit report and sees that you’ve made payments on time, this conveys that you’re a responsible person.
In most states, insurance companies review credit reports when determining whether to issue an auto insurance policy. Some insurers use credit-based insurance scores as one factor when determining your rates.
For example, according to Consumer Reports, single drivers with good credit paid between $68 and $526 more in car insurance premiums each year than those with excellent credit.
A good credit score can also help you get approved for an apartment or qualify for a lower deposit. According to TransUnion, one of the three major consumer credit bureaus in the United States, 43% of landlords run credit checks on applicants as part of their screening process. And 48% consider an applicant’s credit report to be one of the top three factors they look at when reviewing rental applications.
Banks offer a variety of rewards programs designed to encourage you to use your card. For example, some cards offer cash back on purchases. Others offer points or miles for every dollar you spend on the card, which may be redeemable for cash, merchandise, travel and more.
Nearly all credit cards come with a number of basic benefits and privileges for cardholders. These benefits commonly include the following perks:
- Free FICO credit score or educational score access
- Extended warranty protection on items bought with the card
- Roadside assistance
- Zero liability for fraudulent transactions
- Travel insurance
- Auto rental collision damage waiver
Additionally, some issuers provide access to quality financial education developed for first-time credit card users. JPMorgan Chase, Discover and Capital One have each expanded their personal finance education sections on their sites to educate consumers. This is a particularly important feature because many kids don’t learn this from their parents before they head out to college.
Protecting against fraud and theft
Both credit and debit cards help to minimize the need for students to carry cash, which itself is a security benefit. Additionally, if your card is stolen and you are a victim of fraud, your liability is limited to $50 as long as you report the fraud or theft within two days of discovery.
Liability is limited to $500 if the cardholder reports the theft or fraudulent activity within 60 days. Most major credit card issuers offer zero liability for any unauthorized charges on your credit card.
What Should Students Know About Getting a First Credit Card?
There’s not one “best” credit card that’s a perfect match for all students. Each student has unique needs and uses credit cards in different ways. Some students use cards to help them budget their money. Others use credit cards to maximize rewards or build their credit history.
The most important thing for college students is to make sure they’re ready for the responsibility. Credit cards are a great way to build credit while in college.
But students need to make sure they keep low balances and pay bills in full every month and on time. This will keep them out of debt and on their way to an excellent credit score.
When you apply for a student credit card, the issuing bank will look at your credit score and credit report to see if you are a good risk for that particular card.
The issuer will consider:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Credit mix
- Any sources of income
In most cases, the credit score lenders will look at is your FICO score. FICO stands for Fair Isaac Corp., which is a private company that assigns a numerical score to your credit rating.
Your FICO score represents the likelihood that you will pay your debts on time. Base scores range from 300 to 850, with a higher number indicating a better score. While there are other credit scores used by lenders, the FICO score is used most often.
Credit card issuers have slightly lower credit standards for student credit cards because they know you’re just starting out in your credit life. If your application does get approved, you will receive a new credit card in the mail, usually within a week or two.
According to Student Monitor, the average credit limit for all college students is $1,315 as of spring 2016. But credit limits of $1,000 or less are not uncommon for those with very limited credit history.
When you use the card, the bank pays the merchant or vendor, and the bank then sends you a bill at the end of the monthly billing cycle. You are responsible for making at least the minimum payment by the due date. But you should always pay the bill in full each month so you won’t be charged any interest.
Credit cards for people younger than 21
The Credit Card Accountability Responsibility and Disclosure Act of 2009 restricts the ability of banks to issue credit cards to individuals younger than 21. However, you can still qualify for a credit card when you’re younger than 21 if you or a co-signer can demonstrate the ability to repay credit card debts. Be prepared to provide written proof of income.
An alternative is becoming an authorized user. As an authorized user, you can get your own credit card issued on an existing account.
This can create a sticky situation, though, because the account owner is responsible for paying all charges. So, there needs to be a clear discussion about limits. Otherwise, personal and family relationships can suffer.
Most major credit card issuing banks will add an authorized user even if the user is younger than 18. But there’s a minimum age, and it’s usually between 13 and 16.
The account holder needs to confirm that the issuer reports authorized user activity to the bureaus. The primary account owner may have to pay a fee to add an authorized user.
What Card Features Are Essential to Understand?
Your credit card issuer will mail or email you a bill every month. You can also view your bill online at any time by creating an online account and logging into your card issuer’s website.
Here are the most important things you should understand about your bill:
- Total balance: This is the total amount you owe at the time the statement is issued.
- Activity summary: This summarizes the charges and credits to your account during the month. Here you’ll find the aggregate totals of all of the payments, credits, purchases, interest charges, fees, balance transfers and cash advances for the date range on the billing cycle.
- APR: Your annual percentage rate is the interest you pay to borrow money from the credit card issuer. Purchases, cash advances and balance transfers may each have a different APR.
- Minimum payment due: This is the lowest payment you can send to keep the account current and avoid a delinquency on your credit report. You need to pay this to avoid a late fee and other penalties.
- Payment due date: This is the end of the grace period, or the date by which the bank must receive your payment to stay current and avoid carrying a balance subject to interest charges. Grace periods range from 21 to 25 days, and it’s the time between the end of your billing cycle and the date your payment is due.
- Credit line: This is your overall credit limit or the maximum you are authorized to charge to your card.
- Credit available: This is how much credit you have left before you hit your credit limit.
- Rewards: This section will tell you how much you have earned in rewards, whether as cash back on purchases or in the form of points or miles.
- Your free credit score: Most student credit card issuers provide either your current FICO score or an educational credit score from one of the major credit bureaus.
What Are the Costs of Credit Cards?
Of course, using credit cards can be costly. If you’re a student who’s considering getting your first card, you need to understand the following fees and terms so you choose the card that’s best for your needs.
The annual percentage rate is the interest that applies to your balance after your grace period expires. Once you start carrying a balance, you start paying compound interest on your purchases. Compound interest can create big balances in a hurry.
Credit card APRs are typically variable, which means they will fluctuate with the federal prime rate. When federal interest rates rise, your credit card interest rate rises, too.
How credit card companies calculate your interest
You don’t have to pay any interest charges on purchases as long as you pay off your balance in full and by your due date every month. The amount paid off before then isn’t counted in the total daily balance.
If you only pay part of the balance by the end of the grace period, the remaining balance you carry over will accrue interest that will appear on your next billing statement.
That is, it determines your total interest for each billing statement by calculating your average daily balance of that billing statement (every day’s total balance, including the unpaid amount and any new charges) and multiplying it by your daily interest rate (your APR divided by 365).
If you fail to pay off your entire statement balance by the due date, new purchases may not receive a grace period and could begin accruing interest immediately. Also, cash advances usually begin accruing interest immediately with no grace periods on these transactions.
A cash advance is when you use your credit card to obtain cash from an ATM or at the cash register while making purchases. Note that your APR for cash advances is usually higher than your purchase APR. It’s an expensive way to get cash, so never get a cash advance unless it’s a dire emergency.
You can quickly fall into a credit card debt hole by carrying a balance and continuing to charge new purchases to your card. Once you start carrying a balance, stop using your credit card until you’re out of debt.
How long will it take to pay off a balance?
If you carry a balance on a credit card, you will have to pay off the entire amount you borrowed, plus interest. With APRs for student credit cards often between 17% to 25%, the effect of that compound interest can be quite powerful over time.
How much you pay every month toward your balance makes a significant difference in your total interest owed.
The example below shows the money saved on interest from making the bare minimum payment versus a larger payment every month. The starting balance is $1,000 and APR 23.76%.
How long will it take to pay off a $1,000 balance at an APR of 23.76%?
|Starting Balance||Monthly payment||Time to pay off||Interest you’ll pay|
|$1,000||$35 (minimum)||3 years, 7 months||$488.25|
|$1,000||$70||1 year, 5 months||$186.87|
Doubling your minimum payment from $35 to $70 per month cuts your total interest by nearly 62%. For this reason, you usually want to be as aggressive as you can in paying down a credit card balance.
The best course of action is to maximize your available rewards and never carry a balance. That way, you actually profit from using your rewards credit card.
Some cards provide a 0% APR on purchases, balance transfers or both for an introductory period after you open the account. The period may range from six to 21 months. Depending on issuer policies, this introductory APR may be lost if you miss a monthly payment.
Some cards charge a penalty APR, commonly 29.99% for student credit cards. This APR can be applied if you’re more than 60 days late on a payment and you’ve received a written notice 45 days ahead of the rate increase. Your card issuer is required to review your account at least once every six months to determine whether it can lower your APR after a penalty rate increase.
Most credit cards allow you to get cash out of an ATM, but any cash advance usually has an APR greater than the APR on purchases. Most cards will charge an average of 3% to 5% or a minimum of $5 to $10, whichever is greater.
And remember, there’s no grace period on cash advance transactions. Interest starts accruing the moment it’s posted to your account.
Student credit cards rarely charge annual fees. But credit card annual fees typically range from $25 to $550. Sometimes card issuers will waive the annual fee for the first year; otherwise, it’s added to your balance on the first bill you receive.
Cards with annual fees usually have better rewards and benefits than cards with no fees. If you’re earning a lot of rewards, annual fees are often worth the cost.
Some cards will charge a fee for overseas or foreign currency transactions, typically between 1% and 3%. It’s important to read your card’s terms before traveling or ordering merchandise from other countries so you don’t get blindsided by foreign transaction fees on your statement.
Foreign transaction fees could be an especially important consideration for exchange students or students who study abroad. So, if you’ll be traveling abroad, get a student credit card that waives these fees.
If you have a balance and fail to make at least your minimum payment by the due date, your card issuer may charge you a late payment fee, which it will be added to your balance on the following statement.
For most consumer cards, federal law limits late fees up to $40. Some cards do not charge a late fee for the first missed payment.
If you make a late payment, consider it a warning sign. Make sure it doesn’t happen again. Using a credit card is supposed to help you build great credit, but only if used responsibly.
What happens if you don’t pay your bill
If you fail to pay your credit card bill for more than 60 days, it can lead to serious credit problems. It will be reported to the credit bureaus and your credit score will take a big hit. If you default and your account is sent to a collection agency, this ends up on your credit report, too, and will stay there for seven years.
A poor credit score can make it nearly impossible – and much more expensive – to access credit in the future. It can affect the rates you pay for insurance, and it can potentially hurt your ability to get a job, an apartment, a mortgage and even a cell phone contract.
In some cases, creditors may sue you to collect if you don’t pay your credit card debt. If they prevail in court, they will receive a judgment against you for the amount you owe, plus court costs and legal fees, depending on the jurisdiction. They can then use this judgment to garnish your wages, seize funds in your bank account or seize or put a lien on other assets that belong to you.
It is better to be responsive to the creditor and negotiate a settlement or a more affordable payment rather than let it go to court. Consumer laws for debt collection can vary by state, so consult with an attorney as soon as you can to prevent further damage to your credit and finances.
What Types of Student Credit Cards Are Available?
Rewards cards provide incentives to cardholders to use their credit cards. Some student credit cards offer cash back rewards. For example, you might earn 1% cash back on your purchase total. Some cards have extra bonus rewards for specific categories. And other rewards cards let users earn points or miles.
Some cards also offer sign-up bonuses to make applying for a card more attractive. While not all student cards offer sign-up bonuses, they can offer a nice cash bonus instead.
The simplest type of rewards program is a cash back program. A cash back card credits a percentage of your total transactions back to your account. Some cards offer enhanced cash back rewards programs in certain spending categories, such as restaurants or entertainment.
The Bank of America Cash Rewards Credit Card for Students, for example, provides 3% cash back in a category of your choice, including gas, online shopping, travel, dining, and drug stores, and home improvement and furnishings, 2% cash back at grocery stores and wholesale clubs and 1% cash back on all other purchases. The 3% and 2% cash back earnings are eligible on up to $2,500 in combined choice category, grocery store and wholesale club purchases each quarter (then 1%).
Other cards provide higher bonus cash back incentives in categories that rotate every few months. One thing to keep in mind for cards with rotating bonus categories is that you have to enroll in the program each quarter to get the 5% bonus cash back.
Points and mileage programs
Other types of rewards programs let you accumulate points or miles that you can redeem for travel, such as airfare or hotel stays, merchandise or gift cards.
If you can’t qualify for a traditional unsecured credit card, you may want to consider a secured credit card. Here’s the difference: A secured card requires a refundable cash deposit as collateral to “secure” the account.
Your cash deposit stays in the bank, and you get a credit card to use so you can build a credit history. Your credit limit is usually equal to your deposit, but this varies by issuer.
Pay your credit card bill on time for a number of months and you’ll see your credit score improve. Eventually, you may be able to qualify for a higher credit limit or even qualify for an unsecured version of the card, if one is available. If your account graduates to unsecured status, the bank will return your deposit.
Secured cards have high interest rates, but if you pay off your balance every month and don’t take cash advances, the APR won’t matter. If your secured card has rewards, you can still accumulate travel, points or cash back rewards.
Unless the issuer allows a large deposit, your credit limit will be fairly low. The low limits can be a problem when it comes to your credit utilization ratio: If you have only have a card with a $200 limit and you spend $100, your credit utilization ratio is 50%, which can lower your FICO score. Stay aware of how much you spend and keep your utilization ratio under 30%, which in this case, is $60.
You don’t need to worry about using a secured credit card when it comes to your FICO score. The score sees no difference between secured and unsecured credit cards. The score treats the information the same way that it handles an unsecured line of credit.
Secured credit cards vs. prepaid debit cards
Secured credit cards help you build credit, but prepaid debit cards do not. Prepaid debit cards don’t report your credit history to consumer credit bureaus. When you use a prepaid debit card, you’re not buying anything on credit. You’re using your own money to buy something.
Credit cards not only help you build credit, but they also keep your money safer when you shop online.
What Are Credit Card Best Practices?
Use this checklist to help you use your credit card responsibly, so you can enjoy a debt-free life.
Build good financial habits.
- Use your card only for essential purchases that you can pay for each month.
- Put part of any income you earn into a savings account to use as an emergency fund. Don’t rely on credit cards to cover unexpected costs.
- Pay off your balance every month.
- Stick to a budget and track your expenses. Automate as much as you can with free online tools or mobile apps.
- Get organized. Set up calendar reminders and internet banking systems to ensure all your bills get paid on time each month.
- Don’t get cash advances.
- Check your online account several times a week, at least. Report suspicious or fraudulent transactions as soon as you discover them.
- You can start developing good credit habits by paying phone bills, rent and utilities on time every month.
- Don’t use more than 30% of your available credit; less than 10% is ideal.
- Be careful about closing old account because it might lower your credit score.
- Get a free credit report by visiting AnnualCreditReport.com. Each of the three credit bureaus are legally required to provide you with one free copy of your credit report every 12 months. Pull one every four months from one of the three bureaus and review it for accuracy.
- Don’t cosign for other people.
- Don’t ignore creditors. Pick up the phone and work with them if you get in trouble, or find a local credit counselor.
- Know the signs of credit repair scams. If you fall behind on payments and do damage to your credit, beware of any services that advertise quick fixes for an upfront fee, or who tell you that they can remove accurate information from your credit report.
For Parents: What Do Teens Need to Know About Money and Credit?
A 2016 survey from the National Financial Educators Council asked 2,409 Americans what high school course would have benefited them the most, and more than half of them chose a course on money management.
As children enter their teen years, the decisions they face get more challenging. Below are a number of free educational resources designed to help parents and teachers educate children on financial literacy and credit, in particular.
Teaching teens financial literacy
- Teachers and home-schoolers looking to teach financial literacy can find entire units at InCharge.org, which has several lesson plans that include worksheets, slides and PowerPoint presentations on various aspects of financial literacy.
- The Boys & Girls Clubs of America sponsor a general financial literacy plan for teens called Money Matters: Make it Count. The National Credit Union Administration has educational plans for elementary students, teens, young adults and parents and teachers at www.mycreditunion.gov.
- American Consumer Credit Counselors also has a series of financial education lessons called Dimes to Riches, for middle school and high school students.
- The Consumer Financial Protection Bureau also provides a number of tools for parents here.
TheMint.org has developed a teachers’ module on budgeting that gives children a practical exercise in creating and managing a budget. TheMint.org has also created a number of interactive tools for teens, including a budgeting tool for high schoolers and college students.
Compound interest and the value of money over time is one of the central concepts of personal finance. Many young adults don’t fully grasp the power of compounding interest until they are on the wrong side of it.
But compound interest also has a dark side. Seeing how a credit card balance can grow out of control due to compound interest really gets someone’s attention. You can use this tool to show the impact of interest on a balance: credit card interest calculator.
Most banks offer special checking accounts for teens and will open accounts for children roughly age 13 and older. These teen checking account products are subject to monitoring and additional controls by parents and guardians. For example, the bank will issue a teenager a debit card, but parents can set limits on withdrawals and expenditures, and monitor where their children spend money on their debit cards.
This a terrific way to teach teens how to use plastic. Don’t opt in for overdraft protection. This way, the debit card gets rejected if the bill exceeds the available funds in your kid’s account.
Your kids then learn that if they don’t have the money to cover the purchase, they shouldn’t be buying it. Use this rule as a guideline: Teens aren’t ready for a credit card if they haven’t mastered using a debit card.
The American Bankers Association has a list of participating banks in your area.
Kids should learn the basics of safeguarding their personal information, as well as tips and techniques to ensure they aren’t snagged by online phishing scams and similar criminal operations. The High School Financial Planning Program offers a module designed to help teenagers learn to protect themselves from fraud.
For a great explanation about credit scores, including how it impacts your credit, see myFico.com. You can also get a free copy of your own credit report to review with your teenager at AnnualCreditReport.com.
Educators may be interested in the Public Broadcasting Service and Frontline production “Secret History of the Credit Card,” which comes with a series of learning activities centered on the documentary. Additionally, InCharge Institute of America devotes a module specifically to credit cards.
American Consumer Credit Counseling has produced a Financial Workbook for Pre-college and Current College Students, which you can give to your high school senior or student to walk them through common financial decision making processes. Topics include choosing a bank, credit card management, earning money from jobs, scholarships and various ways college students can save money.