Credit Card Changes & Managing Credit Wisely

Basics

Most teens will not be eligible for a credit card, unless it is co-signed by an adult.  A credit card is a plastic card that can be used to purchase goods and services and then paid for later.  This compares to debit cards (which only allow you to spend the amount you have in the bank at the time of the purchase).  See the section on ATM & Debit Cards.  Credit cards can be issued by banks, credit card companies (such as American Express), savings and loan institutions, retail stores, gas companies and many more.

When you decide to get a credit card, get as few as possible, maximum three.
  • Pay off the full balance of the credit card every month, if possible.  If you can’t, and can only pay off some of the debt, you’ll be charged interest on the balance (the money you owe).  Make sure you make your payments ON TIME.
  • Credit card interest varies and is subject to change.  Read the fine print before you sign up.
  • Look for hidden fees.
  • Some credit card companies charge you annual fees.
  • Most credit cards offer a grace period after the payment due date of up to 25 days.  After that, you’ll pay interest on the remaining balance.
  • Don’t max out your card limit.
  • Your payment history and how much you owe affects your credit score which will determine your ability to borrow in the future (see Credit History & Credit Score (FICO) .
Make sure you really read the fine print before you sign up.  Here’s a great site from the Federal Reserve about credit cards (go to site, click on Consumer Information Brochures, click on Tips for Getting the Most from Your Credit Card:
http://www.federalreserve.gov/publications/default.htm

 

New Credit Card Rules For Teens

In May 2009, President Obama signed a Credit Card Bill of Rights.  This bill, which sets up guidelines for credit card company practices, will take effect March 1, 2010.  The big change for teens is that consumers under the age of 21 must have a co-signer (an adult, probably a parent) who is willing to take on the responsibility of the debt, in case you don’t pay.  Additionally, a request for a limit increase must be approved by the co-signer.  However, if a person under 21 can prove they have the ability to pay; this age limit might be waived.  One of the primary reasons for this part of the legislation was that when teens went to college, credit card companies bombarded them with offers to entice them to open up credit cards by giving them free stuff.  Many students opened up multiple accounts.  Too many then went on a buying spree, which most couldn’t afford.  Before they knew it, they owed a great deal of money and ruined their credit score before even graduating and getting a full time job.  Check out the new Bill since it also protects good creditors from card issuers trying to take advantage of them.
http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR00627:@@@L&summ2=m&