Well, today I was having yet another discussion with my daughter Gloria, now 15, about a driver’s permit. Since we opened her U22 account, she has committed to helping save for a new car, so the minute she turns 16 . . . ugh . . . she’ll be able to drive. Now, when we opened her GTE Federal Credit Union U22 account, Gloria was given a U22 debit card, which the parent inside of me was super excited about – it’s plastic in her eyes, and yet has limits and control at the same time, which is golden in my eyes.

In my research, the debit card is mentioned as a great prerequisite for a credit card in a lot of the articles I read. Gloria is managing her own money and feeling good about having her own account, but she doesn’t run the risk of getting into debt. To me, debt is a very scary word, but to Gloria, it just doesn’t have much impact yet. So to better convey why a U22 debit card is perfect for her right now, I switched gears and put the whole credit card, debt thing into terms she would understand – how credit could affect her CAR aspirations. More poignant still – how BAD credit could affect HER future car loan. Here’s how it went . . .

Parents, feel free to use this – here is how I explained credit – in car terms.
- Getting a credit card is the first step in establishing good credit, or the first step in putting dents in it.
- When you get a credit card, it’s like a permanent record; everything you do, or don’t do, will be noted and possibly judged, so if you get in to debt, and can’t make your payments, it can follow you around for a very long time.
- Car loans refer as far back as 7 years, so when you turn 22, Gloria, and want a new car, the credit card payments missed when you were younger could hurt you.
- Credit ranges from 850 to 300. Let’s say by the time you’re 22 and your credit rating is around a 650 – about average. You may qualify for around a 7% annual percentage rate or APR (The amount of interest you would pay per year on your auto loan for the money that is lent to you).

AVERAGE CREDIT SCENARIO:
So, you want to buy a $17,000 car and you have no money saved for a down payment?

The total amount you will pay for your $17,000 car would be $18,530.

BAD CREDIT SCENARIO:
That same car with bad credit, can mean that you’re denied a loan or must have your parent co-sign on the loan. For the few that are able to get a loan, you could pay as high as a 25% APR. The math now?

That’s over $14,000 MORE than if you qualified for 7% with decent credit!

By, the way, the first thing Gloria said to me when I used a $17,000 car for an example was “But, the Mercedes I want is over $35,000.” I was thinking in my mind – 22 with a Mercedes? Good luck with that, but at least she has big dreams right?

Anyway, I went on to explain that a debit card is a great way to ease into “plastic.” And, although her GTE U22 debit card only lets her buy what she can afford, because she has to have the funds actually in her savings account to pay right then and there, she’s already on her way to establishing good credit just by creating an account history.

Here are some other great articles I found that helped inspire this blog:

Ehow.com: How bad credit can affect a car loan

http://www.ehow.com/how-does_4565415_bad-credit-affect-car-loan.html

MSN.com: How Teens Get Sucked Into Credit Card Debt http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/HowTeensGetSuckedIntoCreditCardDebt.aspx?page=2

Edmonds.com: Auto Loan Calculator

http://www.edmunds.com/apps/calc/CalculatorController