Teaching kids about money is both a privilege and a challenge, especially when it comes to helping them earn credit.
You know that by the time they graduate from college, they will need good credit, so you can start with a credit card. The key to success is to set boundaries and show kids the right way to handle money.
When does it make sense to apply for a credit card for a child?
Every family’s journey is different, but the following steps will help you figure out if your child can start using a credit card without putting your finances at risk or risking their own long-term credit history.
Do they understand credit cards?
Because there are so many non-cash ways to send and receive money, it can be difficult for kids to understand what money is. Your children should have a basic understanding of interest rates, balances, and credit limits. Keep them focused on the basics of using credit, especially if they have a bonus card that encourages them to spend.
Can they follow your rules?
Set some ground rules if you plan to sign a card or add your child as an authorized user. Find out what they can use the card for and what types of purchases are prohibited. Find out if they will be responsible for the expense themselves or reimburse you directly.
It is extremely important to set rules and limits so that there are no surprises for you or your child in the future. Don’t add your children to your cards out of guilt or obligation. Look for alternative ways to help if you think sharing your finances with your kids will cause tension in your relationship.
You are ready?
Most major credit card issuers allow you to add a minor as an authorized user, but it’s important to weigh the pros and cons to avoid any potential damage to your credit history. Adding your child to your credit card will only hurt your credit if they don’t use it responsibly.
However, instead of waiting until they turn 18, you can create a credit profile for your child earlier by adding them as an authorized user. It helps teach financial responsibility and good spending habits until adulthood.
Minimum age requirements for a credit card
Some credit card issuers set a minimum age for authorized credit users, while others do not. Here’s a snapshot of some of the age limits, or lack thereof, for each major credit card issuer:
|Credit card issuer||Minimum age|
|American Express||13 years old|
|Bank of America||No minimum age requirement|
|Barclays||13 years old|
|Capital One||No minimum age requirement|
|chase||No minimum age requirement|
|City||No minimum age requirement|
|US bank||16 years|
|Wells Fargo||No minimum age requirement|
How to get a credit card for a child
If your child is ready, here are options to set them up for credit card success:
Add them as an authorized user to your cards
Perhaps the easiest way to help your child set up credit is to add them as an authorized user to one of your existing accounts. They’ll get a card they can use on their own, but you’ll still have 100% visibility into what they’re buying.
The advantage is that they can benefit from your good credit as some accounts will show up on their credit reports, although you will need to confirm this with the issuing bank. The downside is that you are responsible for all expenses your child accumulates.
Sign them on a secure card
Instead of letting your teen charge your account, you can offer them to sign up for a secure credit card. They (or you) deposit a certain amount of money, say $300, to secure their line of credit.
“This little skin in the game helps young people be more aware because they don’t want their funds gone,” says Cindy Martini, president and CEO of Member Access Processing.
Joint signature for a credit card
If your child is unable to get a card on their own due to their limited credit history or lack of income, you can co-sign the account. However, you will be responsible for paying the balance if they charge more than they can repay.
Unsecured credit card without a guarantor
This is only an option if your child is 18 or older and has a source of income such as a campus job. An unsecured credit card in their name gives them maximum freedom as they own the account. But it’s also the riskiest option if they don’t understand how to use the card responsibly.
Whichever option you choose, make sure your child is involved in the process.
“You really want this property to be owned by a young person, not something that parents have to pay for later,” says Martini.
Explain the fine print
Before you help your child open an account, familiarize them with the fee schedule and card redemption conditions. Teenagers don’t think about interest and late fees, but those are the factors that are most likely to lead to unmanageable debt. Help them understand how much they will be charged if they are late on a payment and how this will affect their credit score.
Watch their credit
In addition to reviewing the terms and conditions and checking in monthly, when they receive their reports, take them through a check on their credit scores. Request their annual credit reports and help them look for signs of fraudulent payments and account openings. Explain that they should only share their personal information with trusted sources such as college administrators or reputable banks.
Building credit is an important part of financial literacy and you are the best person to teach your kids what to do (and what not to do). By working with them and giving them independence in the process, you guide them to become capable and financially responsible adults.
Not every child is ready for the responsibility of navigating credit cards, balances, late payments, and so on. However, if you think they’re ready to start developing a healthy relationship with credit, or if your child expresses interest in taking the next step in their financial journey, take the time to teach them good habits while they’re young.