Credit Cards for Teens: Teenagers have to wait until they are 18 or older to apply for and obtain their own credit card, but financially savvy parents can then place a card in the possession of their children and teach them about credit and financial responsibility.
Choosing the right tween or adolescent card depends on the age, maturity, and financial ability of the child.
Getting a credit card as a teenager has lots of benefits, including:
Getting an early start on building credit: It takes some years to build credit because your credit score is determined by factors such as payment history and the age of the accounts. If you get a credit card early, you can start early and hopefully have a high credit score by the time you graduate from college so you can get an apartment easily, car loan, or even a mortgage.
Learning financial responsibility: When you get a credit card, it is pertinent to learn how the card works, how your use of credit affects your credit score, and why it is necessary to pay your bills on time. Having a credit card can help teenagers develop these essential skills at a young age.
Developing good spending habits: Teenagers who have access to a credit card can learn to manage their budget and spending to make sure they do not charge more than they can afford to pay in full when their statement arrives.
Peace of mind: When teens have access to a credit card, it could be used for covering emergency expenses. Many cards also provide travel insurance, car rental insurance, extended warranties, coverage for damaged or stolen cell phones, and also free credit score access.
Although there are explicit benefits of getting a credit card as a teen, you can’t get a card of your own until you’re at least 18. You have to make sure you select the card that’s right for your situation. In this case, you want to get a card that reports to all three major credit bureaus.
Best credit cards for Teenagers
The Amex EveryDay® Credit Card from American Express
This card might be a great card for you to open and add your teen as an authorized user, as there is no annual fee and no fee for added cards.
The card also offers an introductory 0% APR for the first 15 months on purchases and balance transfers (which are requested within the first 60 days of account opening). Thereafter, your APR will be a variable rate, currently 15.24% to 26.24%, based on your creditworthiness and other factors.
Journey® Student Rewards from Capital One®
This card can be a good option for teens due to its lack of an annual fee and foreign transaction fees. The card was designed for students, making it easier for people with little to no credit history who want to build their report and score to get approved.
That should help teens get their own credit card even without a credit history. But people under 21 who do not have their own income will likely still need a co-signer, or they’ will need someone else to apply for the card and then add them as an authorized user.
Discover it® Secured Credit Card
This is a secured credit card that lets users build credit while preventing them from spending more than they can afford, since it usually comes with lower credit limits and requires a security deposit in order to make charges. There is no annual fee, and it is one of the few secured cards that allows you to earn cash back rewards for spending.
How to choose credit cards for teens
1. Prepare your teen for a credit card first
You cannot expect your teen to make smart decisions with credit if they don’t understand how it works. Cristina Guglielmetti, CFP® and president of Future Perfect Planning, suggests ensuring that you’ve covered the basics of credit cards.
That includes going over topics like the ones below:
How credit works and why it’s different from cash.
What interest charges are and how they accumulate.
What happens when you charge money to your credit card that you don’t repay.
Due dates and penalties for late payments.
Who is responsible for paying the bill and how to do it.
Any spending limits, in terms of dollar amounts or categories of spending.
The risks of using credit cards.
“Talk about the factors of a credit score and how credit utilization and on-time payments are very important ones,” adds Erin Lowry, author of “Broke Millennial: Stop Scraping By and Get Your Financial Life Together”.
Communication is key if you’re looking at credit cards for teens. Encourage questions and walk through the answers in as much detail as possible. There should be several conversations that take place before your child ever receives access to credit on his own.
2. Be honest: Are they ready for credit?
You need to look objectively at the situation as an experienced adult: is your teen capable of managing his or her own credit line?
Lowry suggests giving your kid, along with a budget, financial training wheels in the form of a debit card or prepaid card. Then see if your teen can keep up with his budget regularly and remain within a spending cap when using plastic rather than money.
If this is not achieved by your child, you might have him help pay for tuition or interest charges to demonstrate that his decisions have financial consequences, while still encouraging him to practice and learn. Guglielmetti adds that financial assistance provided to teenagers— either cash or credit — should be known as “practice money.” She added that “You cannot really expect an 18-year-old to suddenly have good money-management skills without having had anything to try before,.
But if teens continually fail to follow the rules and show they can’t manage their spending and bills, go back to the financial basics until they’re better prepared to take on the responsibility of credit.
3. Review card options carefully
Once you decide that a credit card is an appropriate option, you will need to determine which card is best for your child. Here are a few things to look for when choosing credit cards for teens.
Fees: Look for cards with no annual fees. Review each credit card’s terms and conditions to get a complete list of all fees and interest charges. If you’re tempted by a card with an annual fee, calculate how much you’d need to spend in a year to make the fee worthwhile.
APR: Mistakes happen, which means your teen might carry a balance now and then. Look for a credit card with a low APR so mistakes aren’t as costly in terms of added interest.
No frills: You don’t need to worry about rewards when looking for credit cards just for your teen. The ability to earn rewards could encourage overspending and make it harder for kids to stick to their spending limit.
Parents are advised to explain to teens that despite how much they could spend, they should keep their revolving balance to 30% of the card’s limit at most.
The Bottom Line
A credit card is a good tool in general to teach a teenager about credit, credit cards, credit monitoring, budgeting, and money management. Even parents who have not perfectly handled credit cards in the past can help their kids start their financial journey. Money management requires a lot of practice as with any other skill, so encourage your child to use and pay off balance for each billing cycle.
Please read and make sure that you understand the terms, conditions to fees before applying for any ticket, and make sure that your teen cardholder does as well.