Personal Finance Workshop for Teens (part 3)

Part 3: Credit Cards/Debt

1. At what age should I get a credit card?
Using a credit card is a big responsibility. You should get one when you feel that fully understand exactly how the credit card works, how credit cards can help you, and how credit cards can hurt you. Most credit cards require users to be at least 18 years old, however there are some available if you sign up with an adult co-signer (make sure that it is in your name and that it will impact your credit score, not the adult co-signers credit score). The sooner you start using a credit card, the sooner your credit history begins. A portion of your credit score is determined by the length of your credit history. Having a good credit history for a long period of time will help you get lines of credit in the future, for example to buy a house or to take out a car loan.

2. Should I have a credit card when I am in college?
In my opinion, you should try to have a credit card once you turn 18, but ONLY if you feel mature enough to handle the responsibility. Bad credit card habits from your first card will stay with you and severely damage your chances for future credit.

3. Is it bad to keep borrowing from the bank when you have bad credit?
Getting out of debt is very difficult. If you have bad credit, it is likely because of poor money management skills at one time of your life. To fix your bad credit, you have to start getting smart about how you handle money. You have to prove that you can pay back your loans and that the bank can trust you. This takes months, sometimes years of paying bills on time, keeping your expenses under control and making smart money decisions. Until you can control your current debt to a manageable level, it’s generally a bad idea to keep borrowing money. If you have taken control of your debt, and you have a rational and reasonable plan for paying it all off, borrowing more for a worthy cause may not be a bad thing. But the key is to have a strong plan about how you will pay all your money back, keeping in mind that you can’t predict the future and you shouldn’t buy things that you can’t afford.

4. How much money is deducted per every minute that we’re late?
Late fees on a credit card payment vary by the terms set in your agreement. Typically, the fees are charged per day as opposed to per minute. Recent legislation to protect credit card users caps credit-card penalty fees at $25.

5. Is it necessary to have a credit card?
You can certainly live without one, but it will make it difficult to get credit in the future. Credit can include student loans, car loans, mortgages (home loans) etc. While it’s not really necessary to have a credit card as a high school student, you should consider opening one as a college student and starting to manage it wisely.

6. Does bad credit stay with you forever?
There are a few different types of bad credit – but to address the two big ones: Accurate negative information generally can be reported for seven years, but there are exceptions. Bankruptcy information can be reported for 10 years.

7. How can I get good credit?
Your lenders want to see that you are trustworthy. That you aren’t taking on too much debt, and that when you do take on debt, you have the ability to pay it off. Start exercising good credit habits! First: DON’T BUY WHAT YOU CAN’T AFFORD! When you get a credit card, staying below 50% of your credit limit is wise, below 30% is best. Pay your balance in full and on time. Don’t be late on your payments (set up a mobile alert or put it in your planner so you don’t forget!)

8. How do you keep your credit score good? What is a credit score?
See #7. A credit score is a number between 300-850 that shows your “creditworthiness”. It is a score calculated from items on your credit report that lets a lender know what your history is like (how many cards you’ve had, number of late payments, total debt you have, . A high score will help negotiate a lower interest fee on a future loan or more flexible terms. A low score will make it harder to secure a loan as a lender will be hesitant to give you a loan knowing that you’ve had trouble borrowing before. Scores generally fall between 650 an 700. A score above 700 is considered good credit management.

9. At what age should you get a credit card?
See #1.

10. How can I have multiple credit cards and maintain good credit?
If you have several credit cards, continue to be aware that you shouldn’t charge too much on any one of them. Try and spread out your purchases on all the cards so that no one card reaches over 30% of the credit limit. Some believe that the most important aspect of your credit score is the debt-to-limit ratio. This is a ratio indicating how much debt you have in relation to your credit limit. As a result, you will have a higher score if you have lots of available credit and pay your bills on time.

11. What happens when you are in debt?
First thing, is debt is EXPENSIVE!!! The longer you are in debt, the more you end up paying to the lender. For this reason alone, staying in debt for long periods of time is not good. Furthermore, if you have too much debt that is hard to control, a lender will be hesitant to lend you more money. If your car breaks and you have to get a new one, a lender who sees that you already have a lot of debt might deny you a loan or charge you a very high rate of interest. Over a few years, that $15,000 car, could end up costing you over $25,000! Not all debt is bad though. If you can manage your debt well, it will help build your credit and show that you are a responsible borrower. It’s borrowing too much and not paying it off quickly that will really hurt you in the long run. Remember, DON’T BUY WHAT YOU CAN’T AFFORD!