A credit card for your kid? Before you completely write the idea off, consider that there are legitimate reasons to consider giving your kid plastic. Getting your child a credit card for kids can help make your little one a savvy spender. By empowering them with the skill of financial literacy from an early age, they could be set up for a much more stable future, which could benefit both them and you.
But wait, can kids even get credit cards? They can with your help. That’s why it’s important for you to be knowledgeable about the options for credit cards for kids and how you can guide them to develop good habits and responsible credit management.
If you’re still hesitant about the idea of kids’ credit cards (we can’t blame you), we recommend reading this post to learn more about why you might reconsider and how to go about getting one. You can also use the links below to navigate to the section you need:
- Benefits of Kids Having Credit Cards
- How to Get Credit Cards for Kids
- Best Credit Cards for Children
- How to Help Your Child Manage Their Credit
- Kids’ Credit Card Pitfalls
- Sign Them up for Their First Kids’ Credit Card
Benefits of Kids Having Credit Cards
While it might seem like credit cards for kids are a major risk, the benefits often far outweigh them. That’s because with careful supervision, you can help set your child up for a better financial future. Let’s review some of the main benefits of giving your child a credit card.
Help Them Build Credit
Many young adults find themselves unable to qualify for their own credit cards because they have no credit history. However, you can prevent this from becoming an issue for your child if you help them build their credit early on—that’s where kids’ credit cards come in.
Establishing a credit line for them when they’re younger increases length of credit history, which makes up 15% of credit score. With a better credit score, they are more likely to:
- Pay less for car insurance premiums
- Be approved for an apartment or house rentals
- Have an easier time qualifying for student loans or a car loan
- Get lower interest rates
- Avoid security deposits on cell phones or utilities
Teach Them Good Habits
For many people, getting a credit card can open a door to a lot of temptation, as it gives them access to more money. However, if your child has become accustomed early to good habits when it comes to credit card usage, they may be less likely to fall victim to the potential pitfalls of owning a credit card.
Teaching your child best practices for paying off credit cards, maintaining their balance, and monitoring their credit score are invaluable skills.
Help Them Avoid Overspending
The average American household has $8,398 in credit card debt, according to Debt.org. And with the average credit card interest rate at over 16%, borrowing money doesn’t come cheap. Many credit card holders fall into a pattern of overspending with what they may consider “free money”—sometimes it can feel like that when you don’t have to pay for it right away. Whether it’s retail therapy shopping spree, a spontaneous luxury vacation, or putting a big purchase on the card, many people have every intention of paying it back with their next paycheck, but too often that’s not the case.
While giving your child a credit card is scary, letting them dive into credit unsupervised is even scarier. Teaching kids about money and helping them understand the consequences of overspending on their credit cards can help them avoid the all-too-common fate of ending up in a never ending pit of credit card debt.
While it might seem hard to imagine what kind of financial emergency your kid could run into, there are actually a variety of situations when having a credit card could help your kid. You never know what kinds of scenarios could arise when they’re on vacation with their friends’ family, on a school trip, or even on their way home from school.
While it’s fairly unlikely that emergency situations will arise, you both will be better off if your child has a back-up plan to get themselves out of a sticky situation. As long as you are both on the same page about what constitutes an emergency, having access to credit card funds could provide both of you peace of mind. Just make sure you lay some ground rules when teaching your child about appropriate credit card usage.
Show Your Child You Trust Them
One of the most overlooked benefits of getting your child a credit card is showing them that you trust them with this responsibility. Your trust in them can help them build confidence in their decision-making capabilities and empower them to be financially responsible, both of which will benefit them well into the future.
How to Get Credit Cards for Kids
You may be wondering, how can a minor get a credit card? They’ll need your help, but it’s fairly straightforward. Here is what you need to do:
- Research whether your credit card provider allows you to add your child as an authorized user on your credit card. Some of your options may include:
- Adding them as an authorized user: It’s still your account and your responsibility to pay the balance, but as an authorized user your kid can make charges on your card. Be specific about what items you are allowing them to charge and remove them if they prove they cannot handle the responsibility.
- Giving them a secured credit card: Put $500 in a bank account to secure the credit limit, then if the bill doesn’t get paid, the bank uses the deposit to cover it. Make sure the issuer reports the payments to the three major bureaus, Experian, TransUnion, and Equifax.
- Co-signing on your kid’s credit card: At 21, your grown child may be eligible for a credit card as long as you sign off on it (or if they can show a stable source of income). Co-signing on a credit card can help them secure a better interest rate. But think twice before you put your own credit history on the line, because you are legally both on the hook to pay it off.
- If they do have kids’ credit cards, complete your lender or bank’s process for adding them as an authorized user. If they do not, then you will need to look at other banks or credit card companies that do.
- Set up the parameters for the card—spending limits, tracking alerts, blocked purchases, etc.
- Your child will then be issued their credit card, which will need to be activated.
Keep in mind that not all companies offer credit cards for minors under 18 or allowed for authorized users, in fact most have age requirements, so you may need to research your options to find a credit card issuer that works for you.
Best Credit Cards for Children
Here are credit and debit cards for kids that can be a good starting point for teaching your child about financial management:
- Gas card: Credit cards for gas stations are a way to give your child an opportunity to learn about and building credit, without the temptation of spending on unnecessary things. Gas cards make great starter credit cards for students who need to drive to high school and college.
- Prepaid debit or credit cards:This type of card won’t build credit, but the upside is that a child as young as 13 can typically get one. Keep in mind that there may be maintenance fees on these types of cards.
- Card with a low limit: A low limit credit card can help prevent spending from getting out of control; these cards usually have limits of about $250-$500.
- Emergency credit card: Stipulating that the card is only to be used for emergencies is one way to teach your child about credit, without giving them free range. A useful emergency credit card should have a higher balance, but be carefully monitored to prevent abuse of their privileges.
If your child isn’t quite ready for a credit card, set them up with a debit card before graduating to credit. Tie it to their bank account and set up notifications so you can see where your child is charging. If they can’t handle debit, forget about credit for now. The downside is that a debit card does not establish credit history.
How to Help Your Child Manage Their Credit
- Set a limit: With tight boundaries that you set, failure may come, but in small doses. Aside from staying out of debt, more and more employers are checking applicants’ credit history, meaning solid credit lessons early on could improve chances of employment down the road.
- Review the monthly statement with them: Explain how the card works and when the bill arrives, explain it again. Due date? Check. Payment options check? Check. Interest rate? Check. Grab a calculator and show them what an interest rate is—in real dollars. Talk about what happens if you don’t pay off the balance in full and make a rule to always do so.
- Explain fine print: There many aspects of credit management that are easy to overlook. Make sure to point out the repayment terms, annual fees, late penalties. etc.
- Monitor credit: If they have their own credit card, you may want to regularly check their credit score (along with their statement) to ensure there are no issues such as unauthorized spending or errors that need to be disputed.
Comparing credit to cash is one of the most important aspects of teaching kids about managing their credit—emphasizing that it is not free money and needs to be repaid responsibly. USA.gov is also a valuable resource for teaching your child ins and outs of credit cards.
Kids’ Credit Card Pitfalls
Before signing your child up for kids’ credit card, it’s important to consider the risks:
- Accumulation of debt: One of the scariest things about allowing your child to have a credit card is that they risk accumulating debt. While it can be dangerous if it gets out of control, the key is supervision, and learning to pay off the full balance on time each month.
- Risk of scams and theft: With access to a credit card, your child may be pressured or manipulated into spending or allowing others to spend the funds available. There’s also the risk that the card could get lost or stolen; children are known to forget or lose things frequently. This is where emphasizing caution and responsibility will be essential. You should also read up on child identity theft at Consumer.ftc.gov.
- More impulsive tendencies: Children tend to be more impulsive in nature because they haven’t learned as many of the hard lessons about consequences as adults. And depending on their age, their decision-making skills may not have fully developed.
- Credit card addiction: Those with addictive personalities, especially when it pertains to shopping, may be more inclined to abuse the convenience of credit cards and form a credit card addiction.
- Your credit habits could affect their history: No matter how responsible we try to be, sometimes we make financial missteps or fall on hard times. How your credit history can affect your childs’ is important to keep in mind if they’re an authorized user on your card.
Keeping in mind these kids’ credit card pitfalls, and how to circumvent them, will help you set your child up for success.
Sign Them up for Their First Kids’ Credit Card
Taking the plunge into getting your kids a credit card can be a scary and stressful process, but it doesn’t have to be. By taking it one step at a time, educating your child about credit cards, and closely monitoring their usage, you can make this a positive experience. Once you have a game plan for how you’ll help your child use the credit card, take the initiative and sign them up as soon as they’re eligible.