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Should My Child Get a Credit Card for Bad Credit?

Dec. 14, 2014
Credit Cards
Should My Child Get a Credit Card for Bad Credit?
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Teaching kids financial literacy is a part of being a parent that is too often overlooked. And helping them develop good money management skills includes making sure they take the right steps to build a good credit rating.

Credit scores aren’t just used to determine whether someone is a good credit risk, according to the Federal Trade Commission. FICO scores are also used by employers, landlords and insurance companies. That means your child’s credit score will have a major influence on whether she (or he) is able to get a job, find a nice place to live and get the insurance coverage she needs to protect herself throughout her life.

Build a Credit History

Luckily credit cards for people with bad credit are also available to a much more innocent group — people with no credit history at all. As your child is gaining financial independence from you, she will need to build a credit history of her own. Applying for a credit card for people with poor credit can help her establish a credit history and build up a healthy credit score.

Typically, a credit card for bad credit has a lower limit, a higher interest rate and fewer rewards than a credit card for people with established good credit. Over time, your child’s credit score will increase as long as she pays her bills on time, and she’ll be able to get a rewards credit card or a low-interest loan.

If a credit card for people with no credit doesn’t seem like the best option, there are other ways to help your child build good credit. You can add her as an authorized user on one of your cards, which gives her a longer credit history when she applies for her first solo card. But be careful — if you don’t pay your own bills on time, you risk damaging your child’s credit even further. It’s better for your child to have no credit history than to have a lot of black marks on her record.

Cosign for a Credit Card

It’s also possible to help your child apply for her first credit card if you cosign with her. Again, there is some risk involved. If your child doesn’t keep up with the payments, your credit could be damaged or you could be stuck covering her debts.

Whether you’re taking on the responsibility of cosigning for a new card or adding your child to one of your existing accounts, it’s crucial that you talk to your kids about responsible use of credit as they enter into adulthood. Paying bills on time, maintaining a low balance relative to the overall credit limit and gradually building up a longer credit history will all help make your child’s credit score stronger.

Mother and daughter image via Shutterstock.