There are many reasons your teen might need a credit card, ranging from emergency funds to establishing credit history. If you think your teen is ready to handle it, applying for a credit card can be a way to establish financial responsibility early on.
However, it isn’t easy for teens to qualify for a credit card. For one thing, they need to be at least 18 to apply for one; it’s illegal for any company to make credit card offers to anyone younger than 18.
Instead, consider making your child an authorized cardholder on one of your accounts, whether it’s a standard major credit card or a retail credit card. There is no minimum age requirement to become an authorized card user. Think of it as being the training wheels of financial independence. As the primary account holder, you can limit how much of the credit limit an authorized user is allowed to spend, so there’s no chance of going overboard.
You can let your teen carry the card to make specific purchases or small discretionary purchases with the promise of repayment. This way you can ensure that they learn how credit really works while they build their own credit at the same time. Just remember that you assume any financial liability from your child using a credit card that’s primarily under your name.
When your teen starts working and sets up a bank account of their own, you’ll want to co-sign for a debit card linked to their bank account. If you do this you should always review the statement in order to discuss any charges and how to budget real money. If your child has a debit card, make sure you discuss the consequences of overdraft fees. It’s also a good idea to sign up for overdraft protection.
Many credit card companies offer credit card applications specifically designed for college students and older teens. You may be required to co-sign on credit card applications if your student is 18 to 20 years old. Most credit card companies don’t want to issue cards to people younger than 21 without proof they can make payments or without a co-signer. By co-signing, you’ll have the ability to determine the credit limit.
You can also opt to give your teen a prepaid debit card. These cards can’t be overdrawn since you load a certain amount of money on them. This way, your teen can learn how to spend money responsibly without the risk of overspending. The downside is that prepaid debit cards charge high fees for most activities, even just swiping the card. Also, using a prepaid card won’t help your teen build credit.
Teens who create a firm financial foundation can carry these skills well into adulthood. You’ll need to talk to your teen about responsible card use, including the importance of building good credit as well as the ramifications of getting into debt for unnecessary purchases. This requires frank discussions about when it’s appropriate to use the card, what will happen if the card is misused and the importance of paying bills on time and in full.
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