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Student credit cards and young credit

When should you get your child a credit card?

The right decision will vary from family to family. Here's how to set your child up with a card, and how to help them manage it

Summary

Some parents add their children to their credit card accounts in their early teens, while others insist that their kids wait until they can qualify for cards on their own. The right decision will vary from child to child, but it doesn’t hurt to start discussing credit with them early.

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Teaching your children about money is both a privilege and a challenge, especially when it comes to helping them build credit.

You know they’ll need good credit by the time they get out of college, so your impulse may be to start them young with a credit card. The key to making that work is to set boundaries while showing your children how to be good with money.

When should you teach your children about credit?

“I always tell parents, they are the experts when it comes to talking to their kids about money and about credit,” said Beverly Harzog, a consumer finance analyst and credit card expert at U.S. News & World Report. “Ideally, you want to talk about how credit works and family budget kind of issues once they’re in elementary school. Once they get an allowance, they can start learning some basic concepts.”

Harzog said she started teaching her children about credit cards when they were in middle school and saw her paying for items with credit cards in order to accrue rewards. But every child is different, so only you can judge whether they’ll be receptive to learning about credit and whether they can handle the responsibility of having a card.

Some parents add their children to their credit card accounts in their early teens, while others insist that their kids wait until they can qualify for cards on their own. The right decision will vary from child to child, but it doesn’t hurt to start discussing credit with them early.

See related:  How to help kids build credit before 18

How to set your child up with a credit card  

Add them as an authorized user on your cards

Perhaps the simplest way to help your child establish credit is to add them as an authorized user to one of your existing accounts. They’ll receive a card they can use on their own, but you’ll still have 100% visibility into what they’re purchasing.

The advantage is they may benefit from your good credit, since some accounts will appear on their credit reports, though you’ll want to confirm this with the issuing bank. The drawback is that you’re liable for all the charges they accrue.

Sign them up for a secured card

Rather than letting your teen rack up charges on your account, you can encourage them to sign up for a secured credit card. They (or you) put down a certain amount of money — say, $300 — to back their credit line.

“That little bit of skin in the game helps the young person be more aware, because they don’t want their funds to go away,” said Cyndie Martini, president and CEO of Member Access Processing.

Co-sign for a credit card

If your child can’t get a card on their own due to their limited credit history or lack of income, you can co-sign the account. However, you’ll be responsible for paying the balance if they charge more than they can repay.

Unsecured credit card without a co-signer

This is only an option if your child is 18 or older and has a source of income, such as a part-time campus job. An unsecured credit card in their name gives them the most freedom since 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 engaged in the process.

“You really want, out of the gate, to make that ownership be with the young person and not have something the parent has to pay for later,” Martini said.

How to help your child manage credit

Every family’s journey is different, but the following steps will help you help your child without jeopardizing your finances or letting them risk their long-term credit profile:

Explain the fine print

Before helping your child open an account, walk them through the fee schedule and repayment terms for the card. Teenagers aren’t thinking about interest and late penalties, but those are the factors that are most likely to create unmanageable debt. Help them understand how much they’ll be charged if they’re late on a payment and how that will affect their credit score.

Bring credit down to earth

Because there are so many cashless ways to send and receive money, it can be difficult for kids to conceptualize money.

Howard Dvorkin, chairman of Debt.com, suggested making credit and money tangible by having your children use cash as often as possible. Although many people are accustomed to using cards, the experience of handing over cash makes a lasting impression.

“Remember that stuff that’s green and slips through your fingers? You don’t want to let that stuff go, man. You worked hard for that money and you don’t want to let it slip through your fingers,” Dvorkin said. “That teaches the greatest lesson, rather than whipping out a credit card or debit card, which is pretty painless for most.”

Keep them focused on the basics of credit usage as well, especially if they have a rewards card that incentivizes them to spend.

“When someone gets their very first credit card, even if it has rewards, they should just focus on building the habit of using the card in a prudent way, within a budget, and paying it off every month on time,” Harzog said. “Get those habits really set before you start focusing on rewards.”

Set boundaries

If you are co-signing for a card or add your child as an authorized user, lay down some ground rules. Be specific about what they may use the card for and what kinds of purchases are out of bounds.

“You need to monitor the spending, have a talk with your kid about what they can and cannot put on the card — ‘No pizza parties for the dorm on my card,’” Harzog said. “Just be very, very clear.”

That’s especially important if you’ve agreed to pay for some expenses. Dvorkin encouraged his son and daughter to get cards in their own names when they went to college, and he set hard boundaries for what he’ll contribute.

“I get their credit card statements and if I see something I don’t like, guess what – they have to pay it, not me,” he said.

Don’t add your kids to your cards out of a sense of guilt or obligation. If you feel that commingling your finances with your children could strain your relationship, look for other ways to help.

Martini recalled how she handled credit with her two sons.

“I was really honest, I said, ‘If you accrue this amount of money and you increase my payment and you don’t pay me, then that is a discomfort between the two of us on a parent level, and I don’t want that,’” she said.

Rather than add them to her accounts, she offered to co-sign cards for them — with the stipulation that she would review their monthly statements and weigh in when she was concerned.

See related:  4 reasons why college students need a credit card

Monitor their credit

In addition to reviewing the terms and checking in monthly when they get their statements, walk them through checking their credit scores as well. Request their yearly credit reports and help them look for signs of fraudulent charges and account openings. Explain that they should only share their personally identifiable information with trusted sources, such as college administrators or reputable banks.

Building credit is an important part of becoming financially literate, and you’re the best person to teach your children what to do (and not to do). By working alongside them while giving them independence in the process, you guide them toward becoming capable, financially responsible adults.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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