Not having the proper training when it comes to using credit wisely can be the ingredient for a potentially disastrous financial future. Teaching teenagers how to obtain the appropriate credit card and use it responsibly is an important learning tool that will reap continual positive fiscal habits. The first thing for a teen to understand is the credit score system and how it will apply to their lives. Remaining in the high seven hundred range is a goal every teenager should attain so future purchases, applications and background checks will be that much less stressful. Here are five tips to get you started on building an excellent credit history.
Choose two to three cards that work to your advantage. One may be a large company card like a Mastercard or Visa. The other two could be a favorite store credit card. Ask the store you choose if they offer incentives for teens looking to open a credit account. Sometimes they will propose a percentage off your first purchase. Either way, have one of your parents accompany you to oversee the transaction or application process so you do not make any unwanted mistakes. Check out cardratings.com and bankrate.com to research the best choices. Be sure and search for ‘student credit cards’ as these will have different rates/incentives.
2. Beware of Gimmicks
Many companies will promise low to no percentage rates when using their credit card. This offer can be used to your advantage as long as you keep current and on-time with your payments. If you miss one payment the percentage usually skyrockets to an exorbitant, permanent, irreversible, locked in rate. On top of this change there is also likely to be a high late fee. In addition, many people neglect to note when this offer expires which is usually six months to one year. When this deadline is missed your credit card can apply a high percentage fee without warning. Avoid these pitfalls by paying on time or avoiding these offers altogether and instead apply for a basic fourteen to seventeen percent interest card.
3. The Three Credit Companies
Equifax, TransUnion and Experian are the three companies that monitor credit history. Make sure that the credit card you apply for reports to these three organizations so your are on record across the board. Also, to see how your credit scores are building, obtain free, once-a-year reports from each company.
4. Keep Current
By paying above your principal (the percentage applied to your purchase) and/or a portion or all of your purchase each month will begin to build your credit score. It will also avoid late fees and high interest add-ons which will also be reflected on your credit history.
5. Do Not
Avoid cash advances at all costs. The fees are ridiculously high.
Do not charge too close to your limit. If you have a thousand dollar limit try not to charge over three hundred dollars each month.
Never pay late
Keeping track of your credit score from the start will make it easier for you to obtain personal loans later in life, when things like cars and houses actually matter. Build a strong financial foundation now and you'll have nothing but success in the years to come.