What Every Teen Should Know About Credit
June 13th, 2008
It is a right of passage for a teenager. As soon as you turn 18, the credit card offers come rolling in. It can be hard to resist. The average college student will graduate with $5,000 of credit card debt. More and more young people are making credit decisions without knowing the consequences.
Here are the top five things every teen should know about credit:
1. Credit is not a freebie
Credit costs money. When you borrow money, you will always pay back more than you borrowed. Interest can add up quickly. A $50 dollar pair of jeans could end up costing you $500 or more if you charge it on a credit card. A $100,000 mortgage equals approximately $300,000 worth of repayment over 30-years. While you are able to get what you want, you will have to sacrifice in the future to pay it back. Nothing is for free, especially not credit.
2. Credit must be earned
It can take a long time to establish a good credit history. It will take you even longer if you make the wrong decisions at first. You can establish a good credit history by successfully managing a bank account and wisely using a small amount of credit for several years. You must pay your bills on time, every time and be aware of how much you are spending.
There are three major credit reporting agencies that track your credit history throughout your life - Experian, Equifax and TransUnion. These agencies keep records of every credit card, loan and debt you have. They track the payment history, outstanding balances and unpaid debts and obligations. They assign a credit score based on your credit report.
Credit scores range from 300 to 850. The higher the score, the easier it is to get credit. The lower the score, the harder it will be to get credit. When you have a high score, you get the best interest rates, favorable repayment terms and have more options available.
3. Credit can hurt you
If you have misused your credit, your credit history can negatively affect your life. Lenders will look to your credit report to see if you are able to repay loans. If you have poor credit, you won’t be able to find good interest rates. Your insurance premiums, ability to obtain a cellular phone, ability to rent an apartment and some job opportunities are directly linked to your online redit report and scores. Without a good credit history and credit score, your options are severely limited.
4. Credit can be stolen
It is easy for someone to use your personal information to obtain credit in your name. Identity theft is a fast growing crime. Someone can simply use your name and leave you to pay the bill. You have to protect your account information and Social Security number. Never give any information out to unknown sources. Protect your passwords and account numbers. Be selective on who you do business with. If you have any doubt, don’t give out your information or sign anything.
5. Credit can be beneficial when used wisely
If you are smart in your spending, you will find that credit can be very beneficial. It can allow you to buy a home, help you get an education and someday it can help fund your business venture. By wisely choosing when and how you use your credit, you are able to make your life better. Save your credit for things that will pay you back.
One of the best things you can teach your teen is how to use money wisely. This involves all aspects of financial management, from credit to saving. Discuss the basics of finance with your teen and warn them about the pitfalls of debt. By teaching your teen how to manage money, you will give them skills that will pay them for life.
About The Author:
Linda Meadley is very knowledgeable in the field of credit. Throughout her 20 year career she has worked as a mortgage and loans office, credit manager and financial advisor, assisting consumers in their financial endeavors. Her website is packed with great information and tips, including how to obtain absolutely free credit reports
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