Credit cards for young people: an extremely controversial issue. Some say teens and college students should have credit cards, others say no way! Here’s the real question: Are those under age 21 financially responsible/informed enough to have credit cards? There are valid points to both sides of the argument, to which HelpSaveMyDollars.com outlines below:
It is a fact that there is a lack of financial education in schools throughout the country. Only 18 states require students to take personal finance classes upon high school graduation. More states need to follow this trend. Carrying a credit card bears tons of responsibility and risk. Leaving debt on a card can cost people thousands of dollars in interest/fees and will negatively affect the credit score for the following 7-10 years! Most young people are unaware of this. Why? Because they are not learning about personal finance in school! Unless young people know everything about credit cards, the consequences of debt, credit scores, interest/fees and paying bills on time, they are unfit to carry a credit card on their own! In fact, last month, the Credit CARD Act of 2009 went into effect, which made the access to credit for those under age 21 much tougher by requiring young people to have a co-signer on the account, unless they can otherwise prove that they have the income/job to be able to pay off the credit card.
According to Sallie Mae, about 82%-83% of students leave debt on credit cards and don’t pay them off each month! This explains the reason for the average amount of credit card debt per college student – which is over $4,000, according to Sallie Mae.
The other argument is that young people should have credit cards during their teen years, since it will teach them valuable lessons about how credit works and responsibility. The problem is, there is no room for error when it comes to credit scores. Even the smallest mistakes with a credit card can cause years of damage to your credit scores. Learning about credit cards by trial and error is very risky.
There is one type of credit card that is appropriate for college students and those under age 21: secured credit card. A secured credit card does not require a co-signer! But wait, there’s a catch! On a secured credit card, you must make a security deposit of $500 or $750 and that’s the maximum amount of money you can spend. If you default on the card, the bank/credit card company will take your security deposit as collateral, as opposed to having a co-signer. Secured credit cards should not be viewed as a way to spend more money, but simply a way to build credit. Only use secured credit cards for small purchases and pay them off on-time! After 1-2 years of responsible use with a secured credit card, you’ll be able to apply for and receive a traditional credit card with a larger credit limit. Responsible use of a secured credit card is a great way to build credit, especially for young people who have no credit.
Be careful of the annual fees that most secured credit cards have. Visit www.bankrate.com to search for secured credit cards. For more information on how to use credit cards responsibly, visit our Credit Cards section.
Loading ...
