Question: What type of credit card alerts are available? I just added my son as an authorized user and I want to make sure he uses the card responsibly.
Answer: It's an excellent idea to keep tabs on your son's spending while he's learning to use a credit card. Credit card issuers have made big strides in recent years when it comes to offering "alert" features with their credit cards. The alerts offered will vary by card, so you'll need to review the disclosure statements to know exactly what alerts are offered with your specific cards.
These alerts are also called "notification alerts." Here's an overview of some of the most common alerts that are offered.
Purchase alerts. This is the type of alert that will be handy while you keep track of your child's spending. With many credit cards, you'll be able to set up a transaction amount and request a notification if someone makes a purchase over that amount. This feature is not just handy while watching over the learning curve of a child, though. This can also serve as front-line defense against credit card fraud.
If someone steals your card or just your account information and makes a big purchase, you'll know right away and you can call your issuer to report it.
Balance alerts. This is useful to monitor the funds in your checking account if you have automatic payments for credit card bills set up with that account. If you're concerned about someone overspending with a credit card, you want to make sure you've got enough cash in your account to cover the bill.
With some cards, you can even set up a credit card balance alert and get notified when the balance reaches a pre-set limit. This is especially important because if someone uses the card and goes on a shopping spree, a high credit card balance could have a negative impact on your score.
Statement alerts. This feature lets you know when your statement is ready for review. Even for those not monitoring the credit activity of a child, you want to always review your statement in detail. Since you're teaching your son about responsible credit use, it's a great idea to review the statement with him.
Payment reminder alerts. If you prefer to pay your bills manually instead of setting up automatic payments, this alert helps to keep you on track. Making payments on time is crucial to protecting your credit score.
Foreign transactions. This might surprise you, but you can incur a foreign transaction fee without ever leaving your house. You can make a purchase from a foreign company online and get hit with the fee, which is about 3 percent of the purchase amount. This can add up quickly if you are actually overseas, by the way. There are many credit cards that waive foreign transaction fees and if you do travel overseas quite a bit, it's a good idea to get a card that doesn't charge these fees.
ATM cash advance transactions. Be sure to explain to your son why he should not get a cash advance. The interest rates for advances are often 25 percent or more and there's no grace period. This means interest starts accruing as soon as the transaction is posted to your account. On top of all that, there's a transaction fee, which is around 3 percent, but some issuers charge up to 5 percent.
Educate your son about cash advances before you hand him his credit card. This way you'll prevent the expense that comes with a cash advance.