Can your Teen Have a Credit Card? Is it Really Wise for a Teenager?
Can your Teen Have a Credit Card? Some parents wish to offer an early jump start to their child’s credit history by adding them to their credit cards as an approved consumer before they reach adulthood. If you’re a parent worrying about the financial futures of your children, you might wonder how young you ‘re too young to get a credit card?
Legally, no-one can get their own credit card until they are at least 18 years old. Very few students are likely to have developed a credit history that’s enough for them to obtain a credit card for general use. Anyone under the age of 18 can only be an authorized user on the account of someone else — like the parents.
Here are some credit card options that allow teens under 18 as authorized users, along with a few tips for teaching them financial habits.
Why Would You Want to Give Your Teen a Credit Card?
Only one-third of parents explained their children’s credit scores, which is probably why 25 per cent of millennials don’t know what they are — and why most Americans don’t know how to improve them.
By getting a credit card for your teenager, you can teach her lifelong lessons on credit, budgeting and money management. You ‘re going to help her build her credit profile too. Unless your teen refuses to dip his toes into credit until after college, she might have trouble getting a car loan or lease.
That being said, teen credit cards do come with threats. Make sure you do the following steps before you give your teen the keys to financial freedom:
Explain how credit works: Every credit card for teenagers also needs to come with a conversation about credit — and the consequences of its misuse. This convo shouldn’t be a one-time thing, either; continually discussing personal finance is the key to a healthy relationship with money. At the end of this post, I review some of the key credit-related terms every teen should know.
Set spending boundaries: If you add your teen as an authorized user, make sure she knows how much she’s allowed to spend. Perhaps it’s $150 per month, which she needs to track with a budgeting app. You should also set aside time to regularly review charges, such as whenever the statement arrives.
Define emergencies: Many parents want their children to have credit cards in case of emergencies. But an “emergency” looks different to someone who’s 14 than to someone who’s 44. Ensure your teen knows what qualifies as an emergency. Can she only use the card if her car breaks down? Or does a dire after-school pizza craving count, too?
Option 1: Add Your Teen as an Authorized User
Adding them as registered users is the only way for teenagers under 18 to help them create credit. Most major issuers of cards let you add a minor as an approved user. Some enforce a minimum age and others do not. A few cards prohibit the addition of minors entirely to cardholders. The problem of whether you should add your teen as an approved user to your card hinges on age.
Managing your child as an authorized user
Before adding your child to your card, consider the ins and outs of how the issuer handles authorized users to make sure you (and your child) get the desired benefits without getting hit by high fees.
First, you’ll want to find out if adding your kid to your card will cost you. Almost all cards from major issuers allow you to add an authorized user for free, but a few premium cards charge a hefty fee.
Next, you’ll want to find out if and how your card issuer reports authorized user information to the major credit bureaus. Most major issuers report an authorized user account on the guest’s credit files. However, some issuers report both positive and negative information while others, report only positive items.
It’s also important to consider how the issuer handles main and secondary cards on accounts. Most issuers send an authorized user a card with the same card number as the primary cardholder, which can make it challenging to track a secondary user’s purchases.
Removing your child from your card
Eventually, the day will come when it’s time to remove your child from your card. You might decide to remove him if he uses your card irresponsibly, but ideally it will be because he’s ready to get a card of his own.
At age 18, a young adult can legally enter into a contract and perhaps get a card, though the Credit Card Act of 2009 made it harder for young adults under 21 to get credit cards, and they must show proof of income or get a co-signer.
With some issuers, you can also remove a user through its online portal.
When you remove an authorized user, you are responsible for collecting the card and other means of accessing your account. And the issuer might close the account and issue you a card with a new card number.
Once you’re approved, you can ask the issuer to lower the new card’s credit limit. That way, your teen won’t be able to rack up more charges than she can afford to pay back.
Option 3: Choose a Starter Credit Card
Once your teen turns 18, she’ll be eligible for her own credit card. Though starter and student credit cards have reduced credit requirements, applicants under 21 must have proof of independent income to get approved.
So if your teen doesn’t have a job, scholarships, or grants, your best bet is to go with option 2 and add her as an authorized user to a new, low-limit card. If your teen is ready to build credit with her own card — and has the income to back her up — she can opt for either unsecured or secured Card.
Should my teenager get a credit card?
You might think your teen is far too young to use a credit card. But you’ll find two big reasons why it could be a good idea for them to have one.
1. It can teach your teen how to use a credit card responsibly for the future.
After adding your teen as an authorized user, you have control over their account and can see how they use their card. With insight into their spending, you can more effectively teach them solid financial habits. It’s better for them to learn from you now than figure everything out on their own later.
2. It can help your teen build credit early.
Most people start with a brand-new credit history when they’re ready to get a credit card. This usually means they’re limited to student cards and secured cards, both of which typically come with limited features. You can help your teen build an impressive credit history before they reach adulthood. Just add them as an authorized user on your account and consistently make payments on time. When they turn 18, their credit may be strong enough to expand their card options considerably.
3. It’s a convenience for parents and kids.
Sometimes you could forget to give your kid cash for meals at school, transportation or supplies. Getting your kid a credit card can help you avoid unpleasant situations and avoid cash theft.
Common Pitfalls & How to Avoid Trouble with Credit Card
While you still have them under your wing, teach your teen how to avoid trouble with a credit card. Here are a few common pitfalls they should know about.
Just paying the minimum payment.
A cardholder is allowed to make only the minimum monthly payment on their credit card. However, that’s arguably the worst thing to do behind paying late. Paying the minimum allows interest to snowball and debt to accumulate.
Here’s what to do:
Show your teen why it’s smart to pay off their balance in full each month. Teach them how credit card interest accumulates, and how it can be avoided.
Teach your teen they should avoid spending close to their credit limit.
Carrying a high balance puts one in danger of incurring overlimit fees, on top of accumulating high debt. Many experts recommend keeping spending under 30% of one’s credit limit.
Here’s what to do:
Encourage your teen to spend less than they receive from their allowance or job. Teach them how their credit utilization ratio affects their credit score. And explain why it’s smart to keep their ratio under 30%.
This is a sure path to decreasing a credit score. Because your teen is an authorized user on your account, you can protect them by paying your card bill as usual. But if you see signs your teen may pay late in the future, it’s best to nip the problem in the bud.
Here’s what to do:
Set up automatic payments on your card account so that you never miss a payment on your teen’s card account. Meanwhile, ask your teen to repay you by a certain date each month. Encourage them to set up phone or calendar reminders so they don’t forget.
Credit card fraud.
Teach your kids how to keep their credit card information safe. Although credit card fraud can happen even if you take all necessary precautions, it’s a good starting point for your kid to learn how to protect their credit cards.
Here’s what to do:
Explain to your kids that the credit card information can be copied and used illegally. Also, teach them how to recognize which sites are safe and which aren’t for online use.
With the right education and supervision, getting your teen on the path to a credit card can be a great way to help them financially prepare for the future.