How to Help Your Teen Get His First Credit Card
That first piece of plastic can help him establish a credit history when he’s ready
Building a good credit history is one of the best ways to establish a strong financial foundation. A good credit score can determine so much in adult life — whether or not you get approved for housing or a loan, for example, and even whether or not you get hired for a job. So it makes sense to give your child an early lesson in Money 101, which includes helping him get his first credit card — and learn to use it responsibly.
Use credit to build credit
To establish a credit history, your teen needs to use credit. But to get approved for a loan or a credit card, he may need to have good credit. There are several ways around this conundrum.
- A student credit card: These are designed for college students and typically have a lower credit limit than other cards. Students under age 21 will need a co-signer or proof of income.
- A secured credit card: These differ from traditional credit cards in that a cash deposit serves as the initial credit line. If you pay a $500 deposit, your credit line will be $500. Your charges will not be deducted from the deposit — the deposit is what allows access to your credit line. This option is good for people just starting out or those looking to rebuild their credit.
- Adding your child as an authorized user on your card: This can help build her credit, since the credit history will appear on her credit report as well. The debt is still yours to pay back, so be sure to communicate about spending expectations.
Check his credit report
Consumers are entitled to a free copy of their credit report once a year. You can get your own credit report and your child’s at AnnualCreditReport.com. By checking the report you can make sure there are no errors and that everything looks good with all three of the major credit bureaus: Experian, Equifax and TransUnion. Teach your child to check his credit report once a year to monitor it for any mistakes.
Read the fine print
Do your homework on rewards, fees and rates before you decide on a card.
- Rewards. Credit card companies have sweetened the pot by offering rewards that range from airline miles to cash back. Look into a rewards card that works for your child — but teach her to beware of spending more just to accrue rewards.
- Annual fees. Some reward credit cards and secured credit cards can have steep annual fees. You may want to look for cards with no or low annual fees.
- Interest rates. Know your annual percentage rate (APR), which is usually 10 to 30 percent, depending on your credit. On most cards, you can avoid paying interest if you pay your balance in full before the due date. However, some cards have a "daily periodic rate" where interest can accrue daily.
Instill a fear of debt
As a parent, you don’t want to lead your child down a path toward debt. Teach her these credit card do’s and don’ts.
- Pay off the balance every month, before the balance is due
- Put the due date on a calendar
- Understand all the terms and conditions of the card
- Buy things you can’t afford
- Forget about rewards (some may expire)
- Make late payments (this hurts a person’s credit score)
- Think that credit is free money
As the saying goes, teach a man to fish and you feed him for a lifetime. Teaching your son or daughter how to use credit wisely today will pay off tomorrow.