A good credit score is an important ingredient in the recipe for financial success. Teens can begin building their credit using prepaid credit cards -- sometimes called secured cards. Teens don't usually need a good credit score to get one, but they still require monthly payments and a credit check. That means teens who abuse them can land in financial hot water, which is why a parent has to be involved.
Credit Card Rules
Even prepaid cards require a credit check, and getting a card means having to sign an agreement. The cardholder agreement and the credit check are both contracts. Only adults -- people 18 and older in most states -- can sign contracts. To get a card, an adult has to sign the contract on the teen's behalf. Some credit card companies also require the adult to have an account with the company.
Teen Prepaid Cards
Teens can get credit cards with a parent's permission at banks, credit unions and some department stores. The parent is responsible for the balance, so if the teen doesn't pay, the parent's credit takes a hit. Parents also have full control over the account. The parent can, for example, close the account or change the credit limit without the teen's permission. Some institutions offer these types of cards to young adults -- often college kids -- and the parents keep control over the account even after the teen becomes an adult.
Teens can get cards that resemble credit cards without a parent's permission. Pre-loaded gift cards for specific shops or Internet retailers, for example, are sometimes available in easily accessible places like grocery stores. These cards don't require monthly payments because they already have money on them. When the balance is gone, the card becomes useless unless the teen adds more money.
Building Teen Credit
A prepaid card works according to a simple agreement. The card holder makes a cash payment that becomes the card's credit limit. You can't spend more than what's on the card, and you'll still have to make monthly payments. Late penalties, however, can put the card over the limit. Teens who get secured cards in their name might be able to graduate to real credit cards when they become adults, or after they've regularly paid the balance.
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