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. In any case, it doesn’t hurt to start discussing credit with them early.
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 does getting a credit card for a child make sense?
Every family’s journey is different, but the following steps will help you recognize if your child can begin using a credit card without jeopardizing your finances or risking their own long-term credit profile.
Do they understand credit cards?
Because there are so many cashless ways to send and receive money, it can be difficult for kids to conceptualize money. Your kids need to have a basic understanding of interest rates, balances and credit limits. Keep them focused on the basics of credit usage, especially if they have a rewards card that incentivizes them to spend.
Can they follow your rules?
Set some ground rules if you plan on co-signing for a card or adding your child as an authorized user. Be specific about what they may use the card for and what kinds of purchases are out of bounds. Figure out whether they will be responsible for the bill themselves or reimburse you directly.
It is crucial to establish rules and restrictions so there aren’t any surprises down the road for either you or your child. Don’t add your kids to your cards out of guilt or obligation. Look for alternative ways to assist if you believe that sharing your finances with your kids will cause tension in your relationship.
Are you ready?
Most major credit card issuers allow you to add a minor as an authorized user, but it is important to weigh the pros and cons in order to avoid any potential damage to your credit score. Adding your child to your credit card will only hurt your credit if they fail to use it responsibly.
However, instead of waiting until they are 18, you can establish a credit profile for your child earlier in life by adding them as an authorized user. This helps teach financial responsibility and good spending habits before 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 restrictions, or lack thereof, from each major credit card issuer:
|Credit card issuer||Minimum age requirement|
|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|
|Citi||No minimum age requirement|
|Discover||15 years old|
|U.S. Bank||16 years old|
|Wells Fargo||No minimum age requirement|
How to set your child up with a credit card
If your child is ready, here are options for setting your child up for success 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 that 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 that your child accrues.
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) deposit a certain amount of money, say $300, to secure 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,” says 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 on 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 says.
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.
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 what not to do). By working alongside them while giving them independence in the process, you guide them toward becoming capable, financially responsible adults.
Not every child is ready for the responsibility that comes with navigating credit card fees, balances, late payments and so on. However, if you believe they are ready to begin developing a healthy relationship with credit, or if your child expresses an interest in taking the next step in their financial journey, take the time to teach them good habits while they are young.