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Coronavirus hits Maryland in the wallet, state ranks #2 for the need of personal loans

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by David M. Higgins II, Publisher

The U.S. unemployment rate has improved but is still around 11%, while the Maryland unemployment has dropped to 9.9%, historically high for the state. For Southern Maryland, the unemployment rate is under the State rate(Charles 9.7%, Calvert 7.7%, and St. Mary’s 6.9%).

However, those rates haven’t dropped much since the Coronavirus Pandemic shut the state down and millions were left without pay. The latest data available from the Maryland Department of Labor states Maryland added 29,800 jobs in May and the unemployment rate decreased to 9.9% (April’s unemployment rate was later revised to 10.1%).

Coupled with the extra $600-a-week unemployment benefit set to expire on July 25, 2020, experts are predicting Maryland’s need for personal loans will rise.

“We should expect a rise in loan interest once the extra $600 per week in unemployment benefits expires, but exactly how much of an increase there is depends on how responsible Americans are and how much the job market improves,” said Jill Gonzalez, WalletHub analyst. “Right now, many people are getting paid more while unemployed than they did while employed, so there should be an opportunity to save cash and avoid loans. We should not forget that parts of our economy will not recover until we have a vaccine for COVID-19, so it is important that reasonable unemployment benefits continue through that period.”

WalletHub combined internal credit report data and data from Google Search to compile the list of 50 states. For the Search terms “Loan”, “Payday Loans” Maryland ranked near the top at 3rd and 2nd, respectively. For “Home Equity Loans”, Maryland ranks 28th, near the middle of the pack. In terms of credit reporting, Maryland residents ranked 5th in an average credit score change.

“Searching for payday loans is always concerning. Payday loans are an extremely expensive lending option, as they charge exorbitant interest rates and give consumers very little time – until their next paycheck – to pay the money back,” said Gonzalez. “While many people take payday loans out of desperation or because they have bad credit, there are safer loan options available to most people. Payday loans should only be a last resort.”

While Maryland ranks near the top in those looking for extra money to get by, they should look at all options available to them, including cutting back on expenses.

“Borrowing should be a last resort during the COVID-19 pandemic after people have exhausted all other options – from federal and state government benefits to relief from creditors. Most major banks and credit unions will offer some form of assistance to people affected by the pandemic, such as delayed due dates or waived finance charges, but you have to ask,” said Gonzalez. “For people who have to borrow, there is no one solution that is best for everyone. Credit cards are best for short-term borrowing and continuous purchasing power, while personal loans provide a longer-term solution and often have lower APRs. Home equity products provide the lowest interest rates and longest payoff timelines, but the borrower’s house serves as collateral. Ultimately, people should choose the option they are most comfortable with.”

Methodology:

In order to identify the states where people need loans the most during the coronavirus pandemic, WalletHub combined internal credit report data with data on Google search increases for three loan-related terms in the 50 states and the District of Columbia.

The analysis compares loan-related search interest values for June 2020. Values were calculated on a scale from 0 to 100, where 100 is the location with the most popularity as a fraction of total searches in that location. A value of 50 indicates a location which is half as popular. A value of 0 indicates a location where there was not enough data for this term.

  1. Change in Average Inquiry Count June 24, 2020 vs. January 1, 2020: Full Weight (~25.00 Points)
  2. “Loan” Search Interest Index: Full Weight (~25.00 Points)
  3. “Payday Loans” Search Interest Index: Full Weight (~25.00 Points)
  4. “Home Equity Loan” Search Interest Index: Full Weight (~25.00 Points)

Sources: Data used to create this ranking were collected from Google Trends and WalletHub data.




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Bad Credit Mortgage Lenders | The 6 Best Lenders Of 2020

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Bad credit? These lenders might be able to help

Just because your FICO score isn’t as good as you’d like, doesn’t mean you’re stuck with a bottom-tier mortgage lender.

In fact, some of the very best lenders out there are willing to help borrowers with credit scores near or below 600.

Of course, not everyone will qualify. And your rate will be higher than a “prime” mortgage borrower.

But you can still shop around for the best interest rate, fees, and customer service, just like any other home buyer.

Here’s where we recommend starting your search.

Get matched with a mortgage lender (Nov 27th, 2020)

Company Minimum Credit Score Stands Out For 
New American Funding 580 Low credit minimum, top-rated service
Guaranteed Rate 580 Lowest rates on average
Freedom Mortgage 540 Low credit minimum
loanDepot 580 Fully-online lending
Caliber 580 Highly rated customer service
Navy Federal Credit Union* 580 but exceptions possible Flexible credit requirements for veterans

Get matched with a mortgage lender (Nov 27th, 2020)

*Navy Federal Credit Union only serves veterans, active-duty service members, and select military-affiliated personnel 

Editor’s note: The Mortgage Reports may be compensated by some of these lenders if you choose to work with them. However, that does not affect our reviews. See our full editorial disclosures here.


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The 6 best bad credit mortgage lenders

1. New American Funding 

We liked New American funding when we wrote its full lender review. And we still do. But what gave it our #1 slot?

To start with, New American Funding (NAF) examines each mortgage application on its own merits rather than taking a tick-box approach.

That means it can sometimes be more sympathetic to those who’ve had financial problems in the past, including credit issues.

Additionally, NAF offers:

  • Competitive mortgage rates, on average
  • Strong customer reviews and very few complaints
  • A wide range of types of mortgages, including FHA loans with a minimum credit score requirement of 580.
  • Flexible customer service: in-branch, online, by phone, or any combination
  • Fast turnaround. NAF says, “We guarantee that your loan will close in 14 business days. Period,” according to its website (this includes purchase mortgages only; not refinances)
  • A constructive approach to down payment assistance programs
  • An A+ rating with the Better Business Bureau (BBB)
  • A bilingual call center with English and Spanish

The only big drawback to New American Funding is that it’s not licensed to lend in New York state or Hawaii.

But if you live in any of the other 48 states, this lender is likely worth a look for a bad credit home loan.

2. Guaranteed Rate

Guaranteed Rate may not be quite as skewed toward borrowers with bad credit as New American Funding. But it still approves applications from people with scores as low as 580.

And it’s strong in other respects:

  • Highly competitive mortgage rates and origination costs
  • Excellent reputation for customer service and few complaints
  • A comprehensive range of mortgage products
  • Licensed to lend in all 50 states
  • A+ BBB rating
  • 300-strong branch network if you prefer to work face to face
  • Highly praised technologies deliver a good online experience

Guaranteed Rate had the second-lowest average mortgage rate among our top lenders in 2019. (The lowest of all was Navy Federal Credit Union, but it’s only available to veteran and military borrowers.)

Of course, if your credit is on the low end, your rates will likely be above average.

But when you start with a lender that’s known to offer low rates, you may have a better chance at getting a good deal.

Verify your new rate (Nov 27th, 2020)

3. Freedom Mortgage

Although Freedom Mortgage is an expert at VA loans (those for veterans and service members), it offers a good range of other mortgage products.

Freedom Mortgage may even approve FHA loans for some borrowers with scores as low as 540. Here’s what else you need to know:

  • Rates are generally competitive, though average loan fees are a bit higher than some other lenders on this list
  • Takes into account “non-traditional credit histories.” So if you have a sparse credit history, it may look at on-time payments for things like rent, utilities and so on, which don’t typically appear on credit reports
  • Praised for customer service on many online forums
  • Traditional, personalized approach, meaning you can expect more face-to-face or phone encounters. There’s not much of an online experience
  • Licensed in all states and has branches in 26

It’s definitely worth getting a personal quote from Freedom, especially if you’re a veteran or service member in the market for a VA loan.

4. loanDepot

Like many on this list, loanDepot is a fairly recent, tech-first mortgage lender.

loanDepot has only been around since 2010, but during that time it’s grown to the fourth biggest mortgage originator in the US, largely on the back of its innovative lending technologies.

Here’s the lowdown:

  • Minimum credit score of 580
  • The 5th highest score in J.D. Power’s 2020 mortgage origination satisfaction study and an A+ BBB rating
  • Typically has very fast loan processing with many parts of the lending process automated
  • Not the lowest rates or fees on our list, but generally competitive
  • Higher rate of CFPB complaints than most on our list
  • Licensed in all states with branches in 43 states
  • A wide portfolio of loan types

If you’re a big fan of technology and prefer an online application process, loanDepot may be a good option for you.

5. Caliber Home Loans

Caliber delivers a much more personalized and engaging sort of customer service than those who encourage more online interactions.

It has some slick technologies in its back office and may offer faster-than-average closing times. But you’ll be dealing with a person rather than a screen.

Here’s what to expect from Caliber Home Loans:

  • Competitive rates and costs
  • Minimum credit score of 580
  • Few customer complaints to the CFPB
  • Good customer reviews online
  • An A rating from the BBB
  • Licensed in all 50 states
  • Happy to work with down payment assistance programs
  • Great range of types of mortgages

If you prefer to work with humans rather than computers, Caliber is a shoo-in for your shortlist.

6. Navy Federal Credit Union 

Navy Federal Credit Union is a special case. To start with, it’s a credit union, and only members can get loans from it.

Navy Federal membership is restricted to veterans, service members, and others with close affiliations with the military. For that reason, it’s a specialist in VA loans.

For those who are eligible for membership, Navy Federal Credit Union offers:

  • The lowest average mortgage rates and fees on our list (though part of that can be chalked up to its focus on VA loans, which have lower interest rates)
  • No minimum credit score. Navy Federal says, “A member’s approval isn’t determined by just one number — but by several factors,” meaning it will likely consider lower scores with compensating factors and non-traditional credit histories
  • Highest J.D. Power customer satisfaction score on our list
  • But also the highest proportion of CFPB complaints
  • A+ BBB rating
  • No FHA or USDA loans. If you’re not eligible for a VA loan, you may need to look elsewhere
  • Good online services, including an app that lets you track your loan application’s status

If you’re eligible for membership and a VA loan, you’ll want Navy Federal on your shortlist.

Get matched with a lender (Nov 27th, 2020)

What’s considered ‘bad credit’ for a mortgage? 

We’re talking about bad credit mortgage lenders here. But what exactly is “bad credit”?

Many lenders follow the scoring model from FICO, the company that created the most widely used scoring technologies. It reckons that anything below 580 counts as “poor.”

If your score is in the 580-669 range, it’s actually considered “fair.” If it’s between 670 and 739, it’s “good” — and anything above that is “exceptional.”

  • Below 580 — Bad credit
  • 580-669 — Fair credit
  • 670-739 — Good credit
  • Above 740 — Excellent credit

However, it’s important to understand that the definition of “bad credit” can vary, because lenders are free to define their own score ranges how they like.

That means what one lender considers a bad credit score could be perfectly acceptable to another lender.

Just because your score is in the poor range, that doesn’t mean you can’t get approved for a mortgage. But you’ll likely need a sizable down payment and a good story that explains your low score and shows that its cause is in your past.

You’re also likely to have to seek out a sympathetic lender. And that’s where our list of the best bad credit mortgage lenders can come in handy.

Verify your mortgage eligibility (Nov 27th, 2020)

How a low credit score affects your mortgage 

Even if you’re approved for a loan, a low score means you’re going to pay a higher mortgage rate than someone with a better score. That part is unavoidable.

How much higher? FICO has a calculator that could give you an idea. It actually doesn’t go below 620, but it can give you a feel for the difference a credit score makes.

Here’s how the numbers looked for a $250,000 mortgage (though keep in mind that these will vary as mortgage rates change daily):

Credit score range Estimated APR* Monthly payment Total interest paid over 30 years
680-699 2.757% $1,020 $118,000
660-679 2.971% $1,050 $128,000
640-659 3.401% $1,100 $149,000
620-639 3.947% $1,200 $177,000

*Interest rates and payments were sampled in November 2020 and may not reflect current market rates

The monthly differences may look small. But you can see that even paying just $30 more per month, your total interest costs go up by $10,000.

As credit scores go lower, the difference in interest rates and payments grows.

Verify your new rate (Nov 27th, 2020)

Bad credit mortgage loan options 

Of course, you’re not just seeking out the best lenders for people with bad credit. You need a type of mortgage that can accommodate your needs. Here are the main ones:

  1. FHA loans — FHA loans, backed by the Federal Housing Administration, are the most popular option for borrowers with bad credit. Most borrowers need a minimum credit score of 580 and a 3.5% down payment to qualify. But if you can make a 10% down payment, you may be approved for an FHA mortgage with a credit score of 500-579
  2. VA loans — VA loans have no formal minimum credit score. But most lenders want at least 620. Some go as low as 580. And a few, such as Navy Federal Credit Union, don’t specify a score and may be sympathetic if yours is low for a good reason. We excluded Veterans United from our list because it wants a 660 credit score or better
  3. USDA loans — USDA loans typically require a credit score of at least 640 — so they may not be the best for low-credit borrowers. But if your score is high enough, you can use a USDA loan to purchase a home with no down payment
  4. Non-conforming loans — These loan programs, for which banks and lenders set their own rules, may allow credit scores below 600

Conventional mortgages — loans that conform to standards set by Fannie Mae and Freddie Mac — require a minimum score of 620 and a 3% down payment. That’s why FHA loans are more popular among those with lower credit scores.

Non-conforming loans do not meet the standards set by Fannie Mae and Freddie Mac, meaning they’re not eligible for backing from those agencies.

As a result, non-conforming loans typically have higher interest rates — but they may be available to borrowers with low credit scores.

Pick the type of loan that suits you best. If you’re eligible for a VA loan, it’s likely to be one of those.

Find the right home loan for you (Nov 27th, 2020)

Credit score vs. credit report

It’s easy to fixate on your credit score — the single number that represents your reliability as a borrower.

But mortgage lenders don’t just look at this number. They also do a thorough review of your credit report.

Your credit report shows your full history as a borrower.

If you have a low score because of a past event — like a foreclosure — but you’ve been a reliable borrower since then, lenders might be more forgiving.

On your credit report, lenders want to see:

  • A history of on-time payments
  • Reasonable credit usage (below 30% of your full credit limit is best)
  • No new credit lines opened near the time you’re applying for a mortgage

Refinancing with a low credit score 

How easy it is to refinance with bad credit will depend on your current loan type, and what you want your refinance to achieve.

Streamline refinancing

If you currently have a government-backed loan, you may be in luck.

FHA, VA, and USDA all offer Streamline Refinance programs that do not require credit score approval. However some lenders check credit anyway, so you’ll have to search for one that doesn’t.

To use a Streamline Refinance, your new loan must be the same type as your current one — for instance, refinancing a VA loan to a VA loan, or FHA to FHA.

Conventional loan refinance

Conventional refinances, like conventional home purchase loans, require a credit score of at least 620.

If your current mortgage is a conventional loan and your credit score has fallen, you may be eligible for an FHA refinance. However, FHA loans require expensive mortgage insurance. This could eat up enough of your savings that refinancing isn’t worth it.

Cash-out refinancing

If you want a cash-out refinance, you’re likely to need a higher credit score.

FHA cash-out refinancing typically requires a credit score of 600 or higher. And a VA cash-out refinance will often require at least 620.

If you currently have a conventional loan but your credit score isn’t high enough for a conventional cash-out refinance, an FHA cash-out refinance might help you access your home equity.

Verify your cash-out refi eligibility (Nov 27th, 2020)

What to do if your credit score is too low for a home loan

The obvious way to get a mortgage with bad credit is to improve your score. You may be surprised how quickly you can make a material difference.

For tips on how to raise your credit score fast, read our Guide to improving your credit score.

There are other ways to qualify for a mortgage with bad credit, too.

  1. Pay down as much existing debt as you can — If you’re a more attractive borrower in other respects, lenders may be more forgiving about your score. Paying down existing debts, like credit cards and auto loans, improves your debt-to-income ratio. This has a big impact on your home loan eligibility
  2. Build up your savings — Making a bigger down payment can also help your case, as it reduces your risk to the mortgage lender. Borrowers with a cushion against financial problems are less likely to default. If you’re able to make a 20% down payment, a low credit score might not matter as much
  3. Qualify on a friend’s or relative’s good credit — If you can get someone with good or great credit to co-sign your mortgage application, your problems may be over. But it’s a huge ask because your loved one could lose a lot of money and creditworthiness if your loan goes bad

We wouldn’t recommend asking for a co-signer in any but the most exceptional circumstances, because this can be a huge risk to the person helping you out. If your loan defaults, they’re on the line for the money.

Instead, we recommend steadily building up your credit score.

Even if you can’t pay off big debts in full, making on-time payments and keeping your credit usage under 30% can go a long way toward improving your score and boosting your mortgage eligibility.

How to find the best mortgage rate with bad credit 

Some lenders specialize in “top-tier” borrowers, who have excellent credit scores, bulletproof finances, and large down payments.

But other lenders, including the six on our list, are perfectly comfortable helping those with damaged credit.

So shop around to see who can offer you the best deal. And if one lender turns you down, don’t assume they all will — because that’s not how mortgage lending works.

Each lender’s business priorities can change from day to day. And different lenders offer different deals.

So putting some effort into comparison shopping could find you the loan you want at the best rate you can get.

Verify your new rate (Nov 27th, 2020)

Review methodology

To find the best bad credit mortgage lenders of 2020, we started by looking the 25 top lenders on a 2019 market share report from federal regulator the Consumer Financial Protection Bureau (CFPB). We also looked at a few major online lenders, as these companies are growing in popularity.

We whittled that down to our six best by filtering out lenders that required credit scores over 580; charged higher mortgage rates than the average among all top lenders; or didn’t offer FHA loans, because many home buyers with poor credit rely on those.

And we took other factors into consideration. Did a lender have a disproportionate number of customer complaints filed with the CFPB? Did it get too many negative customer reviews on online forums? Did it receive a bad rating from the Better Business Bureau? Did it do well in the J.D. Power 2020 U.S. Primary Mortgage Origination Satisfaction Study?

We didn’t automatically exclude lenders based on those last four. But you’ll find the details as you read the following reviews of each of our finalists.

Verify your new rate (Nov 27th, 2020)

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Loan Application Tips for First Time Borrowers

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Are you thinking about applying for a loan? Well, here are the basic things you need to do to make sure the loan application process is successful. 

  1. Look At Your Credit Report

You need to read your credit report and understand it to have a proper comprehension of your current financial situation as the lender views it. Also, you will know the type of loan you can apply. Even better, you can fix the errors or mistakes on your file. Once you fix these issues before the application, you should be able to improve your credit score accordingly. 

  1. Be Attractive To The Lenders 

There are a few things you should do to be attractive to lenders. Start by putting a down payment on the current debts to indicate a stable income to cover loan repayments and any other living expenses. It’s also a great way to showcase your good credit history. If you don’t need the money urgently, you should spend the time before making the application by acting responsibly when it comes to borrowing by paying the loans on time and in full every month. Before applying for the loan, you should have all the information required ready. 

  1. Compare The Options Available

Yes, you might be tempted to go to the local bank and apply for a loan. However, there might be other loan options out there that are cheaper and suitable to you. Take a look at these guys at Loanza when taking out a personal loan. However, be careful to avoid leaving too many enquiries since it will have a negative impact on the credit report. Financial brokers and lenders have loan calculators available so you can check the repayments for various loan amounts with different terms effortlessly.

  1. Choose A Bad Credit Loan 

Once you have gone through your credit report and realized that you have bad credit history, you can opt for a bad credit loan. Keep in mind that you will have a higher interest rate than a standard loan. However, if you don’t have a chance with the other loans, a bad credit loan is the only choice. 

  1. Check Your Eligibility 

If you don’t want to damage your credit score when shopping around for loans, you should use eligibility checkers (soft search tools). The tools will run a light check on your credit history to identify the right loan products for you without it counting as a credit check. As such, there is no damage to your credit score. With the information, you can limit your loan applications and apply to lenders who will automatically approve the loans. 

  1. Re-organize Your Finances 

You should start getting your finances in order right now. You should have an idea of the amount of money coming into your account and how you are spending it. That way, you will be prepared for any emergencies. Check on your finances to make yourself attractive to potential lenders. Even better, you need to cut back on spending and consolidate your debts

  1. Avoid Over Borrowing And Know Your Limits 

If you have a good credit score and compare different lenders, you might find some who are willing to offer larger loan amounts. Of course, don’t be tempted to request more than you need. Limit the amount to what you need to reduce your repayments and any negative impact in the event of an emergency. 

Knowing your financial situation is the best way to be prepared for any loan application. Take charge of your finances right now to avoid any surprises in the future.

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How to Teach Your Teens About Credit – Forbes Advisor

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Your teens probably think that they know everything and also likely tell you so daily.  However, it’s a safe bet your kids haven’t learned all they need to know about a vitally important topic: credit.  Here’s what you need to make sure your teenagers understand about credit.

They’re Probably Not Learning About Credit at School…or Home

A recent NextGen study found that only 1 in 6 high school students are required to take any classes on personal finance in the U.S. Combine that with the two thirds of parents uncomfortable with “the money talk” that T. Rowe Price found in their survey and you’ve got a dangerous recipe for credit ignorance.

Why is it so hard to talk about money with our kids? It may be partly because parents aren’t confident in their own financial situation.  When 4 in 10 adults can’t find the resources to pay a $400 bill it’s understandable that it can be hard to teach lessons that haven’t been learnt. If you don’t want your children to repeat some of the same mistakes you did, the single best thing you can do is buck up and have an honest conversation about credit and money.

There might be a silver lining in the financial mistakes you’ve made: You may have a prime example of “what not to do” when it comes to credit. If you went nuts with your first credit card and spent years paying it back, your negative experience can become a lesson for your kids.

Credit Lessons Teens May Need to Unlearn

Once you dig in, you may find that even teens who learned about credit in school may have info that is either incomplete or just plain wrong. While teaching kids not to spend more than they earn is a good thing, some financial literacy programs go too far in the other direction with scare tactics about irresponsible debt.

For instance, my high schooler learned that having more than one or two lines of credit was dangerous, which is patently untrue. Carrying balances on high interest credit cards is dangerous, but having a couple of credit cards you pay monthly plus a low interest loan on a car that gets you to work or class can be a responsible choice.

How to Get a Winning Credit Score

Teens are used to playing games and a handy way to teach them to win at the game of life is to help them understand what a good credit score actually is. Even more important than understanding what is a good number is learning how that number is calculated. In general, here are the five categories that add up to winning credit:

  • Payment History 35% Win by paying your bills on time
  • Amounts Owed 30%: Win by borrowing a low amount compared to your total lines of credit, also known as credit utilization
  • Length of Credit History 15%: Win by keeping at least some accounts open for a long time
  • New Credit 10%: Win by not applying for too much new credit too often
  • Credit Mix 10%: Win by having a balance between home loans, car loans, credit cards and other types of debt

If your teen does better with concrete examples than percentages, you can use a calculator to show your teen the exact penalty charged for bad credit.  For instance, the interest on a car loan for someone with excellent credit averages 3.23% according to Experian. For bad credit, the same car loan could cost up to 11.35%.

For a $20,000, five year car loan, that’s the difference between paying $370.46 monthly ($23,227 over the course of five years) and paying $449.31 monthly ($27,958.37 over the course of five years). :

The difference of $79 per month for a car payment is easy for any teen to understand, especially when you can easily see how it adds up to over $4,700 in unnecessary charges if credit is properly kept in check. You can further help drive this home to your teen by having them relate the cost difference to how many hours of work they would need to do to cover the increased cost.

Jump Start Your Teen’s Credit Journey With Authorized User Cards

One way to give your kids credit with training wheels is to give them authorized user card from one of your existing credit card accounts. By doing so, your kids can get a jumpstart on building good credit by allowing them to inherit the history of your account. However, if you miss a payment or have high utilization on that account, your child will inherit that negative information as well, so make sure that you have a good hold on your credit before you try to help your kid out in this way.

If you actually give the card to your child for their use, keep in mind that you’re on the hook for every charge they make, so be sure you’re comfortable with your teen’s level of self-discipline. The last thing you need is hundreds of dollars in bills because your kid decided to buy pizza for the entire track team.

American Express allows authorized users from the age of 13. Perhaps the best part about American Express’ authorized user cards is the ability to set limits on each card, which puts a guardrail in place against your teen’s credit card mishaps.

Chase and Citi do not have an age requirement for authorized user cards, so either could be another viable choice for your tween or younger kids. However, banks besides American Express do not allow limits on authorized user cards, so tread carefully if you have a high credit limit. One workaround around this is to designate a card account that only your teen uses, then set a low limit on the entire card account.

Consider What Your Teen Might Need From a Credit Card

When thinking about which authorized user card to get for your teen, it’s a good idea to think about the kinds of situations that might require assistance a credit card can provide. For instance, roadside assistance came in handy when my son ran down our car battery charging his cell phone. His Chase Sapphire Reserve® authorized user card came to the rescue with its roadside assistance benefit and it was less than 40 minutes from the “click” of a dead battery to the “vroom” of a ready-to-go engine.

Another example: If a study abroad or foreign gap year is in your teen’s future (once we can all safely travel again), you’ll want to make sure your child is carrying a credit card without foreign transaction fees. Many no annual fee cards have pesky foreign transaction fees that can add up to 3% to the cost of every single purchase overseas.

Debit Cards Are Important, Too

You might also want to think about which debit cards are most suited for your teen. The SoFi debit card, for instance, rebates ATM fees worldwide. That could come in handy both if your teen goes away to college,  studies abroad or takes a gap year. A joint checking account with a debit card could be the most convenient way for you to help your teen manage their finances as you can deposit funds your kid can access right away.

However, you need to make sure that your teen understands that when the checking account is empty, the debit card stops working.  A debit card might look like a credit card, but it definitely does not function as one in a pinch.

A Secured Credit Card Might Make Sense

If you know your teen and want to let them test out credit on their own, there is a type of credit card an under-21 without income will be more likely to qualify for without your help: a secured credit card.  The Fair Credit Act of 2009 solved the problem of credit card abuse running rampant on college campuses by preventing those under 21 from applying for a credit card unless they had income or a co-signer.

A secured credit card could be a work-around as the card requires a cash deposit and only issues a credit line that matches the amount of the deposit. Proof of income may still be required but under 21s are more likely to be approved for a card that requires some skin in the game. Secured cards usually still report to credit bureaus and allow a path to building credit and eventually an unsecured credit card.

Credit Cards for College Students

If your student has income or you are willing to co-sign, another type of credit card to look into is the student credit card. Student credit cards usually come with looser credit requirements and have lower limits than standard credit cards so even a student with a part-time job can qualify. Once your student graduates from college, he may also graduate from a student card to a card with better terms. Before applying for a student credit card, be sure to make sure the bank you are considering accepts co-signers if you are choosing to go that route.

Bottom Line

You can’t rely on high school to teach your teen about credit. You have to step up and take charge so your kids are ready and able to responsibly use credit cards and other types of credit as they move into their adult lives.

Credit is a tool, like any other. Used to build a house, a hammer is effective and harmless. Used incorrectly, that same hammer can be deadly. Credit used responsibly can help build a successful future, or improperly used can destroy one.

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