There are two useful ways to allow children to use credit cards. Parents may cosign a credit application for their children, and set a low balance limit on the card. In addition, it is possible to "charge" a prepaid card with funds and allow your child to use it for purchases. Prepaid cards can be a convenient way to allow your children some independence and to teach basic money management. Parents should set clear rules for its use, however, and monitor activity in the account.
Application
Credit card companies do not offer credit cards to individual minors, but they can and do mail offers to kids of high school age while requiring parents to cosign the account. Parents should take into consideration the ability of the child to handle money and debt responsibly and always set a low limit so that the card is not overused and charges don't pile up. In addition, credit card companies such as MasterCard and Visa allow parents to apply for prepaid cards, a safer alternative that is issued in the child's name. If the application is accepted, the parent can then deposit money into the account by using a check, credit card or bank transfer.
Use
Cards carrying the Visa or MasterCard logo can be used universally at any retail outlet or Internet site that accepts credit card payments. For a prepaid card, once the money is credited, the funds are available for purchases. There is no credit limit per se, as the user cannot charge more than the available funds. When a purchase is made, the amount is deducted from the balance. When the funds run out, the card will be declined if the user attempts to buy anything with it.
Cancellation
Parents who cosign for cards may cancel them at any time if the account runs into problems, such as over-the-limit fees and late fees. If a prepaid card is lost or stolen, it can be "frozen" with a phone call to the issuer. This makes a prepaid credit card safer than carrying cash around. Should fraud occur, the card can be cancelled, any unauthorized use refunded and the balance transferred to a new card.
Fees
Ordinary credit cards carry high interest rates that compound monthly. There are no interest charges on a prepaid card because there is no borrowing. Prepaid accounts are also free from late fees, over-the-limit charges and other penalties. However, the card issuer may charge an activation fee to begin the account, as well as regular access fees or transfer fees when money is put on the card. In addition, when any kind of credit card is used to retrieve cash from an ATM, there will be a fee charged.
Prepaid Gift Cards
Another option is the prepaid gift card, which you can purchase at retailers such as Target, Wal-Mart, Best Buy and other stores. The prepaid card is for use at the business that sells it, however, and cannot be used for purchases elsewhere. Gift cards are not a good option if you want your children to carry a card for emergency spending.
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