The Drowning Girl by Caitlin R. Kiernan
A young woman from a family plagued by mental illness tries to retell stories from her life, knowing that her own schizophrenia makes the tale really unreliable. She's never sure if what she remembers really happened, and it's completely heartbreaking and often quite creepy. May be a bit too intense for some readers in the psychological department, but won the Bram Stoker Award for Horror Novel, and it deserved it.
Scare Factor: 2 - It doesn't have definite scares, and is more intense than creepy, but has a dark ambience and heavy subject matter that may be too much for really young readers.