Credit Card Options for Minors - important!

If you’re like a lot of parents, your first thought upon reading this title was, "Are you crazy? Why would a child need a credit card?" But believe it or not, the reasons extend well beyond the shopping mall.

Credit cards are handy for children traveling abroad or even locally with school or a youth group. They won’t be renting cars, but they will be eating and almost every fast food chain now accepts them. It’s also something your child can keep handy just for emergencies. There are plenty of other reasons why minors should have credit cards, including as a tool to teach financial responsibility.

Giving a credit card to a minor really is a decision only parents or guardians can make. If this is something you’ve been considering, here are some options to consider.

It’s important to realize first that minors cannot have their “own” credit cards. Issuance of a credit card is a contractual matter and because of their age, minors aren’t allowed to enter into legally-binding contracts. Therefore, a minor’s credit card has to be attached to a parent or guardian’s account.


Secondary cardholder

Listing a minor as a secondary cardholder is easy. Applications and credit history checks aren’t required because what matters is the creditworthiness of the primary account holder. A secondary card might have a different account number, making it easier to track expenditures or to cancel if it’s ever lost or stolen.

But on the downside, the primary account holder assumes full responsibility for making all payments. Should problems arise, it’s the primary account holder whose credit history is affected.

Debit cards

These look and feel just like credit cards but there’s one big difference: no credit’s involved. Debit cards are linked to bank accounts and as purchases are made, funds are immediately withdrawn. The downside of being linked to a parent’s checking account is immediately apparent when the minor doesn’t control its use and the parent suddenly finds a depleted bank account. So do yourself a favor and find a bank that offers youth accounts. That way, your child can only use the debit card as long as there is money in his/her account. If spending is managed, youth debit cards are great for teaching children that they have to earn money before they can spend it!

Charge cards

The difference between a charge card and a credit card is that at the end of each billing cycle, the balance must be paid in full; interest doesn’t accrue. It’s another situation in which the minor is considered a secondary card holder. Because you can’t carry a balance with a charge card, it is a good way to stress the importance of managing spending.

Prepaid cards

These are cards onto which you load money that can be used for making purchases anywhere the other major credit cards are accepted. As long as money’s available, they can also be used at ATMs for cash withdrawals. When funds run low, all mom or dad or the child has to do is reload!

Info from www.creditorweb.com

Guaranteed Credit Cards for Bad Credit Folks

I just received an email from a reader :


“Hi Mr Credit Card, my credit has taken a hit but I do need a credit card. Do you have any suggestions for guaranteed credit cards for bad credit folks like me? I have been turned down by a couple of the major credit card companies. My score is in the 500s.”

Well, all I can say is that if you have a fico score in the 500 area, credit card issuers and any finance companies will consider you to be a sub-prime borrower. Therefore, the cost of credit to you will be much higher. There are credit cards that are specifically geared towards borrowers like this reader, but they do come with higher costs and fees. Here are the different types of credit cards available and the pros and cons to each one.

1. Unsecured sub-prime credit cards - There are many issuers of sub-prime credit cards. For example, First Premier Bank and Orchard Bank - now HSBC are two of the more well-known sub-prime issuers.

The thing to be aware of when you are apply for one of these cards is the fees. You will most likely be hit with one-time application and processing fees, annual fees and even monthly maintenance fees! I wrote about this in Bad Credit Card Application Fees and Fineprints.

Secured Credit Cards - You are almost always guaranteed to be approved for secured credit cards because you must put a deposit with the credit card issuer. The deposit will be your credit limit and if you default, it acts as your collateral. Most secured credit cards do not have any of the fees that unsecured sub-prime cards charge. They usually just have a reasonable annual fee. The only thing you really have to ask is if the secured credit card reports your payments to the three major credit bureaus. This is because this is the only way for you to rebuild your credit.

Prepaid Credit Cards - You may also see ads touting prepaid debit cards. Though they may be great because you are not extended credit, it also means that you cannot rebuild your damaged credit with a prepaid debit card. It is also more costly than regular credit cards or even a secured credit cards. So unless you got into this mess with uncontrolled spending, I would certainly not recommend a prepaid credit card.

Bottom Line - Even if you have bad credit, you can get a credit card. Most sub-prime credit card issuers will approve your application. You just have to be aware that you have to pay higher fees. If can settle for a secured credit card, then you will not have to pay as many fees as a regular sub-prime unsecured credit card