The most important thing to do with teens, whether they go to college or not, is to fully educate them on how to handle their bank accounts. Then on how to understand interest rates, on credit cards, car loans etc. They should know how to balance their check book and budget their money. Once, done and they want to try to establish some sort of credit, they need to be aware of the FCRA. Or Fair Credit Reporting Act and make sure they understand it. Also, their FICO score is going to play a major factor in their life and they have to know what makes a good credit score and a bad one.
When starting out a teen should first have the ability to pay back the credit before they apply for it. Then they should try for a gas card, a department store card, JC Penny’s is pretty good about giving those out, a capital one card, or a secured card. If they have a co-signer, they could look at getting a car in their name. If they get a credit card, they need to realize that when the statement says they owe $10. that’s really not correct because of the interest accruing and that it is only a minimum payment. They should never go over 50% of the balance of any card if they want to establish “good” credit. They should never pay minimums and try to pay off the card within 2 to 3 months if possible. If they pay it off every month, they will not establish credit because they are not really using it as credit. They should never go over 3 cards, and should always keep them low. When they get a car loan, they should make 2 to 4 payments a month on the loan, even if it is the amount of the loan in total, this way the principle gets paid faster.
If they fully understand how this all works, and can handle their money, they wont get into a bad situation. However, if they spend too freely on credit cards and don’t take into consideration the ramifications of what will happen if they don’t pay, they will get into a situation where they can not pay and it could hurt their credit for 7 to 10 years.
