Getting their first credit card is an important step for your teen in learning to manage their finances. If you’ve got a credit card you’ll know that it can be very useful to have in emergencies, help spread the cost of expensive items or provide a little breathing space between paydays. It can also help to build credit history for when the time comes to make other types of credit applications in the future. But it's also a big responsibility. So, should a teen have a credit card? And at what age can you get a credit card in the UK?
What is a credit card?
Credit cards are issued by banks, some retail stores and finance companies and can be used to pay for goods or services. They can also be used to withdraw cash from a cash machine. But while a debit card will take money from the card holder’s bank account to pay for the transaction, a credit card is rather like a short term loan. When a credit card account is opened, the credit company gives a set credit limit which people can spend up to. However, they must repay the money within a certain timeframe. Most credit card companies will also charge interest, the average annual interest rate on credit cards is currently 21.49%. This means that the cardholder will end up owing more than they originally borrowed.
Understand the difference between a credit card and a debit card
What's important for kids to understand before even considering getting a credit card is that while a debit card essentially represents the cash a person owns, a credit card is borrowed money. It’s effectively a loan from the bank or credit card company that must be paid back within a certain time.
How to start building credit when you're under 18
Your kids can't build a credit history overnight, especially if they are only just starting to manage their own money. Any type of credit account needs to be active for up to six months before a credit score can be calculated. But there are things they can do to improve their credit score.
Get added as an authorised user
Can you add your child to your credit card? Some credit card issuers will allow account holders to add additional cardholders to their accounts. But additional cardholders must be 18 or over. Authorised users can use the credit card but do not have the responsibilities associated with being the primary cardholder. Aside from having access to credit, the main benefit of becoming an authorised user is that it creates the opportunity to learn about what it takes to manage a credit card account and the importance of responsible spending and borrowing.
Can you get a credit card when you're under 18?
A person must be at least 18 years old to qualify for a credit card or be added as an authorised or second card user onto their parents’ account. If they are added as an authorised user, the primary cardholder, their parent, will be responsible for the account and making sure that it is repaid on time.
When should you get a credit card?
Your kids can legally apply for their own credit card when they are 18 years old. That doesn't necessarily mean they should automatically apply for one as soon as they reach 18. Deciding at what age to get a credit card will depend on them and their circumstances. For example:
- Do they really need a credit card? While the idea of having access to credit may be tempting, they will have to make sure they know how much to pay in each month, or at least respect the minimum charges to avoid late-payment fees or interest. A debit card may be a better alternative.
- Can you afford to pay the money back? Credit cards are borrowed money, so they need to make sure to pay back all the money they borrow. If they miss payments, they’ll likely have to pay late-payment charges. Setting up a direct debit can help them keep on top of their credit card payments each month.
- Do they earn a regular income? They are less likely to qualify for a credit card if they can't show that they can pay it back. A regular income paid into their bank account will demonstrate that they can afford their repayments. They must earn enough to at least meet the minimum payments.
- Are they registered to vote? Registering to vote is one of the easiest ways to boost a person’s credit score and makes it more likely that they will be accepted for a credit card.
What are the alternatives to credit cards for under 18s?
If your child is under 18 and unable to get a credit card of their own, a GoHenry prepaid debit card is a great alternative. A prepaid debit card doesn't show up on a credit file, so it won't help them build up a credit history. But applying for one doesn't involve hard checks, and it will protect them from running up debt.
You might be asking at what age can you get a debit card? Well, GoHenry prepaid debit cards are designed for youngsters aged six to 18.
A GoHenry prepaid debit card is like a pay-as-you-go debit card. You can add money to the card and then your child can use it in shops or online to make purchases and withdraw cash from ATMs. Neither you or child have to pass a credit check, and they can only withdraw or spend what is added to the card. With a GoHenry card, you'll get:
- Real-time spend notifications
- Automatic money transfers
- The ability to set up spending limits
- The option of blocking the card's use
- Set savings goals
It's easy to apply for a GoHenry prepaid debit card through the website or by downloading the free app. Just click ‘Sign Up’ and submit your details. Your children will receive their cards in just five-to-seven working days. You can then log in and activate your parent account and cards so your children can get started with managing their money.
A GoHenry prepaid debit card is a safe alternative to a credit card. It can give your child responsibility for their money without the risks associated with taking out credit. While they get financial independence, you can support them along the way and help them to stay on the right financial path.