You may have heard that it is worth starting to build a credit history as early as possible. It usually starts with a credit card.
But how old do you have to be to qualify for a credit card? How are you actually going to apply for one? And when will you know that you are financially ready?
When can I get a credit card?
You must be at least 18 years of age to receive your own credit card as a primary cardholder. But unlike buying cigarettes or buying a lottery ticket, your age isn’t the only factor that matters.
To qualify for a credit card, you generally need to have a well-established credit history and a reliable source of income, two things that many 18-year-olds don’t have. If you do not have a credit history and stable income, you may need to add a guarantor to your card application to increase your chances of being approved.
If you are under 18, you can become an authorized parent’s credit card user. Authorized users can use a credit card like everyone else, but they are not responsible for paying the bill. If you accumulate a huge balance on your parents card, they will be responsible for this.
The minimum age required to become an authorized credit card user varies by card issuer, and figures vary widely. For example, American Express has one of the lowest age requirements at 13, while US Bank requires children to be at least 16 years old. Other card providers do not have specific minimum age requirements.
When are you actually ready for a credit card?
While you may technically qualify for a credit card as a primary cardholder at age 18 or as an authorized user while you are still legally a child, remember that maybe ≠ must. The irresponsible use of a credit card can lead to debt cycles, huge fees and serious damage to your credit history.
Given the risks associated with a credit card, you should only receive a credit card if all of the following conditions apply to you:
You spend less than you earn
If you regularly overdraw your bank account or constantly borrow money from friends, you need to improve your basic financial habits before applying for a loan. Poor impulse control, coupled with increased access to credit, is a recipe that will land you in a pile of high-interest debt.
Try to get through one year without overdrafting your checking account or borrowing money. Pass this stage and then you can consider applying for a credit card.
Read more: How to use a credit card responsibly
You have a budget and you stick to it
Creating a budget allows you to better understand where your money is going and how much you can really afford to spend each month on different categories of purchases (groceries, restaurants, etc.). These limits set make you less likely to buy on impulse and reduce the chance of you getting a credit card bill that you can’t pay in full.
You pay your bills on time
Do you have a habit of forgetting to pay monthly bills like rent or utilities on time? If you don’t work on punctuality, the same behavior can spread to your credit card payments. And the penalties for missing card payments are brutal.
Your card issuer may legally charge you up to $29 for the first missed payment. Repeated missed payments may result in a fine of up to $40 each.
To make matters worse, some card issuers may also increase your card’s APR if you miss a payment (this is called a penalty APR). A penalty of around 30% per annum can result in astronomical interest charges if you don’t pay your card bill in full each month.
Why take a credit card at all?
Given the potential financial danger of a credit card, why not just use a debit card or pay with cash?
Credit Cards Help You Build Your Credit Score
Opening and using a credit card responsibly as a teenager can help you build a good credit score, making life much easier as an adult. On the other hand, making all your purchases with a debit card or cash will not affect your credit score in any way.
A good credit history can help you buy an apartment, pay utility bills without collateral, and even save on car insurance premiums.
A solid credit history means you are a responsible borrower and therefore more attractive to lenders. If you are interested in buying a home at some point, you can only qualify for the lowest interest rates if you have an excellent credit history.
Read more: How does your credit history affect mortgage rates?
The two keys to building a good credit history are paying off your card balance on time and remembering the percentage of use of the loan. A history of timely payments makes up 35% of your credit score and is the most important component in building and maintaining a good credit history. If you have a limited credit history, it’s even more important to make payments on time.
The credit utilization ratio is the amount of credit that you use from the total credit limit across all your credit products. Low credit usage is 30% of your credit score. If you use more than 30% of your credit limit, your credit score may deteriorate. For example, if you have a $1,000 credit limit, try to keep your card balance below $300.
Some Credit Cards Offer Valuable ‘Add-ons’
Higher grade credit cards may offer cashback or bonus points for every purchase you make. These cards may also provide special travel-focused benefits such as a travel insurance package or exemption from foreign transaction fees. Debit cards rarely offer comparable benefits.
However, be aware that these perks are not always offered for entry-level credit cards such as secure or student credit cards.
Read more: 12 benefits of using credit cards
Credit cards provide strong protection against fraud
Most credit cards have zero liability; their cardholders are not liable if an attacker fraudulently uses the card to make unauthorized purchases.
However, victims of debit card fraud are given more limited legal protection. The cardholder is liable for debit card fraud ranging from $50 to an unlimited amount, depending on when they report the card lost or stolen.
Read more: Cash versus credit. versus debit – which should you use?
How to get a credit card for the first time
Opening a credit card is easy enough. Start by learning which cards are the best in different categories. Then choose the best card for your needs and lifestyle and complete its application online. Typically, you will be asked to provide your full legal name, address, contact details, employment and income information, social security number, and more.
Once you apply, the card issuer may provide an instant decision or notify you later. Sometimes they will ask for more information before making a decision. If you do not receive a response immediately, you will often receive a letter in the mail a few days later.
Read more: How to apply for a credit card
What is a good first credit card?
If you’re looking to get your first credit card and you’re over 18, the best place to start is with a student or secured credit card.
Protected Credit Cards
There are two types of credit cards: secured and unsecured. A secure card requires a deposit, which will serve as collateral for purchases deducted from the card. The deposit protects the card issuer in case the customer stops paying their bills. Protected cards are for consumers who are either rebuilding their credit or have a limited credit history.
An unsecured credit card has no collateral; most credit cards are unsecured. Unsecured cards are more likely to offer cashback, rewards, or signup bonuses.
Here is our list of the most secure cards.
Student credit cards
A student credit card is an unsecured credit card designed for college students. Student credit cards usually have lower credit limits and fewer perks than more expensive cashback or reward cards, but are easier for students to obtain.
Most student credit cards have no annual fees and their card issuers are willing to accept students with no credit history. However, if you have bad credit, you may have problems getting your student ID approved. In this case, a secured credit card may be your only option.
Here is our list of the best student credit cards.
Summary: When should I get a credit card?
If you feel you can handle the responsibilities of a credit card and want to build your credit history, then opening a credit card may be the right move for your financial future.
When you open a credit card, keep track of your spending to make sure you don’t go over budget or accumulate a balance you can’t afford. And avoid accruing interest by always paying off your card balance in full and on time.