Establishing Credit In High School

As their student enters those years of high school many parents are wondering if they should help their teenage son or daughter establish credit. This can pose a major dilemma as parents are often wondering about the maturity of their teenager but want to instill in them a sense of financial responsibility. In addition to the question of whether they should allow their son or daughter to have credit parents can be confused as to where and how they can help their high school student establish credit. If you are the parent of teenager or soon-to-be high schooler here are some of the basics you should consider if you are going to let your teen establish credit in high school.

• What is the overall maturity level of your teen? It is a basic fact that not all 16-year olds are created equal in the maturity department. Some teens can take on the responsibility of managing credit while others have yet to grasp the basics of managing a weekly allowance. Do not let the teary persuasion of your teen make the decision for you. If you feel your teen can maturely and wisely manage a credit card, car loan or other line of credit than move ahead if you have any doubts call a truce and agree to resume the discussion in 3-6 months. This waiting period can also be a time where your teen can take steps to show their money managing skills like opening a savings account or establishing a budget for personal expenses.
• Decide ahead of time exactly what kind of credit you will allow. There are various ways to establish credit for a teenager in high school. One of the easiest ways is to open a credit card at a local department store. This has the benefit of allowing your teen to begin to establish credit but limits their purchases to that store specifically. In addition the limits on this type of card tend to be fairly low which will keep your teen from doing to much damage should they lack the self-control to keep their purchases to a reasonable limit. Most lenders will also grant a credit card to a teenager provided their parents sign as co-signers. If you do not feel comfortable with this there is the option of a secured credit card. A secured credit card has a deposit that backs the credit line. So if you or your teen deposit $300 then their credit line will be $300 and so on. The deposit is never touched unless the card is defaulted on and then the creditor takes the deposit as payment. If the card is kept in good standing then eventually it reverts to a normal credit card but this can be a valuable tool in helping your teen save money and establish credit at the same time.
• Set clear guidelines and consequences about using credit. Just because teens may think they are adults does not mean they really are. If you decide to allow your teen to have credit make sure that they understand exactly what the guidelines for using credit will be and what the consequences will be if they fail to follow the rules. Let them know that you will not be making the payments or assuming their obligations if they choose to take on this adult sized responsibility. If their credit card is only to be used for certain purchases or within certain limits make sure they understand that. Educating them on the true cost of interest and other fees associated with their chosen credit card is also vital to their financial education and will aid them in managing their credit responsibly.