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From experimental haircuts to questionable wardrobe choices, many people’s teenage years were marked by bad decisions. The good news is that most of those missteps had little long-term impact.
Credit card debt is much less forgiving. Fortunately, the Credit CARD Act of 2009 raised the minimum age to apply for a credit card to 21, unless a parent or guardian cosigns on the application or the applicant proves that he or she earns a steady income.
That said, there are plenty of benefits to establishing a credit history at a young age. Let’s take a look at the options available to people under the age of 21.
Become an authorized user on a parent’s credit card
A teenager can become an authorized user of someone else's credit card at any age. Although the teen can carry and use a card, he or she won’t be responsible for making payments. Even so, authorized user status can help a teen build credit.
Before taking this route with your child, be sure to have a frank conversation about spending limits and smart budgeting. Make it very clear that the card is only for emergency purposes, if that’s the case. Learning the fundamentals of money management at a young age will set a teenager up for success once he or she is old enough to apply for a credit card independently.
Recruit a cosigner for a credit card application
A young person can also apply for a credit card if a parent or someone else cosigns on the application. Most major credit card companies don't allow cosigners, and issuers that do allow them usually require account holders to be at least 18, but there are exceptions. Cosigning means accepting responsibility for making the payments if the primary cardholder doesn’t pay the bills on time. What’s more, both people’s credit scores will take a hit if a payment is missed.
Remedying this potential issue by keeping a close watch on your child’s credit card balance is easier than ever. Simply sign up for online access to the credit card account and set up payment alerts. Serving as a second set of eyes on your child’s spending will help ensure that any slip-ups are avoided or quickly corrected.
The takeaway: Adding your teen to your credit card account as an authorized user or cosigning on his or her own application is a great way to introduce them to the world of personal finance. Better yet, making either of those moves will help your teen establish a credit history, which will ultimately make it easier to get better rates on future loans and qualify for the best credit cards.