Teach Your Kids How to Use a Credit Card Before College

Your kids learn a lot about money from you. They watch how you manage your money. Before they go out into the world, they get their first financial lessons from you, and there’s plenty to cover. If college is fast approaching, now is the time to teach your kids how to use a credit card.

By getting an early education about credit cards, your kids can start building credit at a young age and reap the benefits later. They can find out how to use credit cards without paying any interest or going into debt.

Best of all, it doesn’t take a long time to teach your children about credit cards. Whether they already know a little about credit cards, or they’re starting fresh, you can explain everything they need to know in a few simple lessons.

1. Credit Cards Are a Way to Borrow Money

A good place to start is the basics of how credit cards work. Explain to your kids that when they use a credit card, they’re borrowing money from the card issuer. The card issuer has approved them to borrow up to a credit limit. For example, if your kid gets a credit card with a $500 credit limit, the card issuer has agreed to loan them up to $500.

If your kids have debit cards, make sure to tell them that credit cards and debit cards work differently, even though they look very similar. After a credit card purchase, the money doesn’t come right out of their bank account. The purchase gets added to their credit card bill, and they’ll get the bill later with all their charges.

You could teach your kids to view a credit card as a middleman. The card makes the purchase, and later, the cardholder pays the credit card bill. If the cardholder can’t pay the bill in full, then they get charged interest, which makes the bill more expensive.

Also go over the importance of sticking to a budget with credit card purchases. The most affordable way to use a credit card is to pay in full every month.

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2. Responsible Credit Card Usage Could Pay Off Later

A discussion about credit cards is also a smart time to talk about credit scores. A credit score is a snapshot that tells lenders how likely it is that you’ll repay a debt. Your credit score is determined based on the information in your credit reports, including their credit card and loan usage.

If your kid uses a credit card responsibly, that could help them build a good credit score. What exactly does it mean to use a credit card responsibly? The most important habits are to always pay your credit card bill on time and avoid running up big balances. Keep the amount you spend well below your credit limit. If you lose control of your credit cards, you could end up in a situation where you need credit card debt relief. Getting out of debt is never quick or easy, so let your children learn and practice with your guidance.

You’ll also probably want to mention what’s in it for your kids. A little motivation never hurts. Here are some of the perks that come with a high credit score:

• Your credit score could help you get approved to rent an apartment—without needing your parents to co-sign.

• You could get a lower interest rate on a car loan or, later in life, a mortgage.

• You might pay less for car insurance. In most states, insurance companies can use your credit score when setting your rates.

• You could qualify for credit cards with more features, like cash back or points you can use to book travel.

3. You Don’t Need to Pay Interest on a Credit Card

Even though you borrow money when you use a credit card, you don’t always need to pay interest. And if your kids play their cards right, they could avoid interest charges entirely.

The key is to pay the statement balance in full every month. That’s the total amount on the billing statement. Let your kids know that the statement balance is the one to pay, not just the minimum. The minimum payment is usually only a small percentage of the total balance. If you pay that, you get charged interest on anything left over.

You may also want to give them a quick example of how credit card interest adds up. Say your kid wants to buy a $200 pair of sneakers (feel free to swap that out for whatever fits their interests). Their credit card has an interest rate of 25%.

If they put the sneakers on their credit card, and then pay it all off when the bill’s due, the total cost would be $200. But if they pay the sneakers off over the course of a year, the total cost with interest would be about $250. It’s an easy choice when you look at the real cost of each transaction.

4. Keep Track of Your Credit Card Activity

Your kid’s credit card statement will have all the charges they made. But also let them know that they can also check their transactions whenever they want online. Most card issuers have apps, too. There are a couple of reasons for your kids to go over their credit card activity at least once a month.

It’s a great way to know if they’re following a budget. They may also want to use a budgeting app that can link to their credit card and help monitor spending.

Reviewing transactions also helps with catching fraud. The Federal Trade Commission (FTC) received nearly 450,000 credit card fraud reports in 2024, and those are just the cases that were reported. Credit card fraud can happen to anyone.

There’s a federal law that requires credit card companies to give you 60 days to dispute charges and limits what you might have to pay. Most companies have zero-liability policies, meaning cardholders don’t need to pay anything for fraudulent charges. You still need to notify the card issuer of fraud, though, to get it taken off your bill.

Bonus: 3 Credit Card Features that Are Great for College Students

You might want to help your kid choose their first credit card before they head off to school.  Since you must be 21 to open a standard credit card account, they’ll qualify for a student credit card instead. These accounts usually have lower credit limits and don’t require a credit history. Look for these three features as you search for a student credit card:

• No annual fee. They won’t need to pay a yearly fee for the card, which is always nice when you’re trying to keep costs down.

• Cash back. Some student credit cards reward cardholders with a percentage back on each purchase. Cash back can add up over time and help your kids save a little money.

• Free credit score monitoring. This type of tool shows your kid their current credit score and may also include tips on how to improve.

Set Your Kids Up for Credit Card Success

You can go over all those lessons with your kids over the course of a Saturday afternoon. And a little time on credit education now could give your kids the tools they need for a lifetime of good credit card habits.