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Ask Jean Thursday: First Credit Cards

mailbagmondayI have a 17-year-old daughter that will be 18 in January 2010. What type of credit card should I get her to start building credit for her?

-Christine, New York

When teens and credit cards mix, the outcome can sometimes be disastrous. But, if handled correctly, credit cards can be a great tool for teaching your college-age kid the basics of financial management.

After your daughter turns 18 in January, she may want to hussle to get that first card. Otherwise, she will need a cosigner. When another piece of the new credit card legislation takes effect on February 22nd, any person under the age of 21 will be required to have a parent to co-sign on their credit card. “Mom needs to be sure she is comfortable with co-signing, which could affect her credit score if her daughter misses a payment,” says Karen Blumenthal, author of “The Wall Street Journal Guide to Starting Your Financial Life.” If your daughter can prove that she’s making enough money to handle having her own credit card, she may be able to side-step the need for a cosigner.

When you start shopping around for a credit card, let your daughter do the work. “It’s good practice for the student to research the options–the interest rate on charges, the interest rate on any cash advances, and the fees you’ll pay if you pay late or go over your credit limit. That way, the card holder knows exactly what the terms will be,” says Blumenthal.

As you probably know, the options for credit cards can be overwhelming. To make it easy on your daughter keep things simple. “I recommend a young person apply for a plain vanilla student card with no annual fee and the lowest interest rate you can find,” suggests Blumenthal. Check and see what your teen’s bank or credit union are offering in terms of credit cards, as many offer student-friendly options.

Before the card gets in your daughter’s hands, lay out some ground rules. Make sure she uses the card at least occasionally and that she pays the full amount due every month. “The single most important thing she can do to build a good credit record is to pay her bill on or before the due date every month. Set up online bill paying to make this easier,” advises Blumenthal

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