Lesson 1: It’s not your money, you have to pay it back. Using a credit card is not free, and the longer it takes to pay back the more it costs. Explain that with a credit card, the bank has agreed to let them borrow a certain amount with a fee, called interest. The longer it takes to pay back the balance, the more interest they’ll be charged.
Lesson 2: You shouldn’t rely on your credit card as a primary source of payment. Their checking account, which holds the money they’ve already earned, should be your primary way to pay for things. If they begin to rely on their credit card for regular things like food and gas, it’s a sign of serious financial trouble.
Lesson 3: There’s a limit to what you can purchase on a credit card. Credit card companies impose a credit limit – a maximum amount the cardholder can charge. If they owe a big balance, that will prevent them from being able to use the credit card when something important comes up.
Lesson 4: Your creditor isn’t ok with you missing payments. The credit card issuer won’t knock on their door for one missed payment or several payments, but they will charge fees, call them at home, send letters, and report late payments to the credit bureaus who will then let other creditors know about the delinquent payment. Eventually, creditors may decide to sue them for an unpaid credit card balance, no matter the amount.
Lesson 5: You’re being graded. Everyone who has a credit card gets a credit score. The credit score is based on credit report information, a document that includes their credit card history. Paying on time and being responsible with credit will result in a better “grade.” Employers and other creditors will check their score to see if they're responsible. Having a bad score can result in not getting a job they want or not qualifying for rent, car loans, and more.
Lesson 6: Only use your credit card if you can afford to pay it back. This may be the exact opposite of what they think about credit cards. But making charges they can’t afford to pay back leads to other credit card problems: missed credit card payments, late fees, higher interest, and a bad credit score. Get them in the habit of thinking about how they will pay back the charge before they use their credit card.