Creditnet News Story

Parents should take the time to teach about credit

Wednesday, March 3, 2010

By William Davis

Should make sure kids understand its benefits, pitfalls.

When they get credit card offers in the mail, many younger people may clamor at the idea of getting that first account.

However, new regulations are going to limit their ability to do so. As a result of the Credit Card Accountability, Responsibility and Disclosure Act, people under 21 are going to have to get a co-signer in order to open a card account. That or they will have to show sufficient income to substantiate having an account.

As a result of the co-signing requirement, parents may find that their children are pressuring them to get a credit card. There are advantages for a young person having a card, such as establishing a credit score, which is essential when trying to get loans.

There are also risks involved in having credit, which can haunt a younger person if they aren't careful. In a recent column for the Kansas City Star, writer Steve Rosen noted that parents need to make sure they teach their children about the responsible use of credit.

"Show them the example on your credit card bill of how much you'll be charged in interest by only paying the minimum," Rosen said.

Other options for getting younger people started on credit include a secured credit card, which uses a deposit to determine a spending limit. Prepaid credit cards may also provide a way to learn how to deal with plastic.