17
Nov

First Credit Card

In a culture where buying on credit is as easy as breathing, instilling the right values around credit can be difficult. Parents often wonder: does my child need a credit card? But the impulse to help your children build credit can get overshadowed by the worry that they may get into trouble with credit card debt.

By law, most kids aren’t allowed to have their own credit cards. The CARD Act of 2009 stipulates that you have to be 21 years of age to get your own credit card, or be able to show steady income. If your child is under 21, but you still feel strongly about helping them build credit, you have a few options.

Authorized user on your credit card

Making your child an authorized user on your credit card is relatively easy. Here are some of the pros and cons:

Pros:

  • Your child can begin to establish his or her own credit history.
  • If you have an excellent track record of making payments, your child will benefit from your good credit.

Cons:

  • You’ll be responsible for paying off every purchase your child makes.
  • Your child won’t necessarily experience the consequences of poor spending choices.
  • If you become overextended on the card, you have to remove your child as a user right away. Otherwise, the delinquency could appear on your child’s credit report.

Making your child an authorized user is really about letting them experience the purchasing power of credit and the importance of sticking to a budget. You can even arrange that your child has to pay you back for every purchase they make to help them take ownership of their spending.

Cosign for your child’s credit card

If you want your child to have a little more responsibility, you can cosign for a credit card for them. But there’s a major catch:

Pros:

  • Your child can build their own credit history from the ground up without needing to piggyback off of yours.

Cons:

  • If your child fails to make payments or becomes overextended, you then become responsible for the debt.

Getting a secured credit card

A third option eliminates the risk to you and keeps the onus of responsibility on your child. If your child is at least 21 years old or has a steady job, they may be able to get what’s called a secured credit card — no cosigner needed.

It works like this: your child (or you, if you’ve offered to help) makes a deposit, which then becomes the credit limit. If your child reaches the limit, the card can no longer be used and the issuer holds the deposit as collateral.

Having a secured credit card mimics what it’s like to have a typical, unsecured card. Your child can make small purchases and pay them off every month, establishing a payment history while staying below the credit limit. But more importantly, all of the responsibility is on them.

Teaching your child good credit behaviors

Whether you add them to your credit card or start them on their own, it’s imperative to teach your child about good credit and financial habits.

  • Talk about credit well before your child goes to college. When your child turns 21, they can apply for their own credit card. They’ll either reap the rewards of financial responsibility or learn about debt the hard way.
  • Explain the value of money and the importance of living within a budget. In our buy-it-now, pay-for-it-later society, there’s no escaping the bill when it comes in.
  • Warn your child about the consequences of buying too much on credit. Reaching credit limits and not being able to make monthly payments can do major damage to credit scores.

As your child becomes more mature with credit usage, it’s also important for them to check their credit report. Errors and mix-ups can hurt their credit without their knowledge. If you or your child does find issues, you can look into free credit repair to help clean up their credit report.

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