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, to help spread the cost of expensive items, or provide a little breathing room 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 US?
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.
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 an ATM. 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 19.13% on new accounts. This means that the cardholder will end up owing more than they originally borrowed.
When it’s smart to get a credit card for a child under 18
Knowing when is appropriate to get a credit card for your child can be a tricky decision. Since parents are responsible for transactions kids make, it’s essential to ensure your teen is prepared to use a card. Consider whether a credit card will benefit your child under 18 in circumstances like:
- Creating access to money in an emergency
- Starting a credit history from an early age
- Learning about how credit works
- Building a credit score for future financial opportunities
Can you get a credit card when you're under 18?
You must be 18 years or older to open a credit card account in the US. Rules regarding how kids under 21 can get a credit card are set by the Credit Card Accountability Responsibility and Disclosure Act of 2009.
When can you get a credit card under 18?
A person must be at least 18 years old to qualify for a credit card alone, but banks can set their own rules for how old a child has to be as an authorized or second card user on their parents’ account. Some banks may not allow you to add any authorized users under 18, while others do.
The pros of building your credit early
Focusing on credit early can help your child build their credit history in life and reap benefits later on. A longer credit history is just one aspect of a credit report. Establishing good credit early can help build your credit score over time, which leads to better rates on loans and credit cards in the future.
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 authorized 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. You can contact the issuing bank of your credit card to ask about adding your child as an authorized user. Some credit cards may allow you to add an authorized user through the online portal.
Authorized users can use the credit card but don’t have the responsibilities associated with being the primary cardholder. As an authorized user, the credit card will show up on your child’s credit report, but they will not be legally responsible for the account.
Consider carefully before adding your child to avoid winding up with a lot of charges you weren’t expecting - and the responsibility for footing the bill. Aside from having access to credit, the main benefit of becoming an authorized 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.
Serve as a cosigner for a child who is 18-20
If your kid is over 18 but under 21, they’ll likely need an adult to co-sign on the credit card account. Your child will need to earn significant income to qualify for a credit card on their own. If you co-sign for your child’s account, you will both be legally responsible for any spending and debt associated with the account.
If you feel comfortable cosigning, consider a lower credit limit. If your child maxes out their credit card and can’t make their payments, make sure you can cover any necessary amounts.
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 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.
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 6 to 18.
You can add money to the card and then your child can use it in shops or online to make purchases. Neither you or your 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
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.
Start your kids’ money journey with a GoHenry debit card today.