What Teens Need To Know About Credit Cards

Recent high school graduates may have learned a lot about math, science, history and English during the last four years. But, many of these teens still have a lot to learn when it comes to credit cards.

"Every year, our credit counselors see young adults whose credit card bills got out of hand shortly after leaving home for college or a job," said Lori Pridgen, community relations director, Consumer Credit Counseling Service of South Texas (CCCS). "Many were charging without a plan on how to pay off their purchases."

Parents would be well advised to school their teens on the ins and outs of credit cards this summer, said Pridgen, noting that in most states 18 year olds do not need parental consent to apply for credit cards. Unfortunately, many parents don't instruct their children on money management regularly.

The result is that some teens lack a basic understanding of budgeting, savings, investing, credit management and debt. Before your teenager starts packing, be sure to share seven important credit card tips from CCCS:

1. Credit card purchases are not free. Don't let your teenager be fooled by the fact that no money changes hands during transactions. A bill will be forthcoming, and payment may be expected in 25 days or less. With a credit card, you are buying now and paying later. Each credit card purchase is like taking out a short-term loan.

2. Credit card officials are keeping score. Teachers aren't the only ones who give grades. Credit bureaus also grade consumers on how quickly they make good on their debts. Teens who pay their bills promptly will get good credit scores and can often get good interest rates on car loans and home mortgages. Teens who don't may end up with bad credit scores and could have a hard time getting competitive or lower interest rates on future purchases.

3. There are cheaper ways to get a tee-shirt. A free tee-shirt or a Frisbee is no bargain if you have to sign up for a credit card with a $25 annual fee, an interest rate in the high teens and a short grace period. Selecting a credit card is too big a decision to make on your way into a sporting event.

4. All credit cards are not the same. Explain that as a consumer your child should shop for the best credit cards available. That means learning what an annual percentage rate, a grace period, a spending limit and other credit card terms mean. Afterwards, go to Web sites like www.bankrate.com and www.cardweb.com to compare rates.

5. Carrying a credit card balance is costly. Let your child know that he or she will be assessed interest once the grace period is up. For example, if your teen charged $1,000 on a credit card with an annual percentage rate of 17 percent and made only the minimum payment of $25 or 2.5 percent, he or she could ultimately pay almost $1,000 in interest.

6. Credit cards are helpful during emergencies. It's hard for teens to budget for unplanned expenses like a car repair or a last minute airplane ticket for family emergencies. When possible students should pay their balances in full to improve their chances of being approved for credit during unplanned events. Also, as a rule of thumb, students should only charge items they can pay off in 90 days. Otherwise, a small problem can turn into a big problem because of compound interest.

7. Credit counseling is available. Let your teen know that he or she can come to you with credit card problems. If money management and credit problems continue, you can recommend that she or he contact a certified credit counselor by calling CCCS of South Texas to schedule a confidential appointment. Educational materials and classes are also available. Call 854-4357 or 800-333-4357 for information.

Share these tips with your graduating senior and he or she won't have to learn about credit card debt the hard way, said Pridgen. "We don't want these folks coming to CCCS with financial problems later," she added.

CCCS of South Texas is a nonprofit, United Way agency and a member of the National Foundation for Credit Counseling. CCCS has been providing free counseling and educational services in the South Texas area since 1969. The agency also offers a Debt Solver Plan to those with severe financial difficulties. This repayment plan is an alternative to bankruptcy. CCCS has numerous offices in the Crossroads, Coastal Bend and Rio Grande Valley.