At what point should your teen get a credit card?
This is an important question that should be considered carefully. In general, it’s best to wait until your teenager is at least 18 years old before getting them a credit card. That way they can fully understand the implications and responsibilities associated with using one of these cards and start building their own credit.
For many parents, the best time to get their child a credit card is when they have graduated high school and are about to enter the working world or go to college.
Credit cards are valuable tools in learning how to manage finances and handle debt from an early age responsibly, and by this time your teen should have enough experience dealing with money that they can be trusted to use a credit card wisely with proper guidance.
Before you apply: Assess your teenager's financial readiness
Understand the maturity and responsibility level of your teen
It's important to ensure that your teen understands the importance of budgeting and being financially responsible before granting them access to a credit card. Talking to your teen about how they plan on using their credit card, setting ground rules like no purchases over a certain amount or warning for multiple uses in one month, can help set expectations from both parties.
Evaluate their understanding of money management concepts
In addition to setting ground rules, it's important to make sure that your teen has a basic understanding of money management concepts. This may include teaching them about interest rates, fees and other costs associated with using a credit card.
Discuss financial goals and the importance of credit history
When talking to your teen about credit cards, it's important to discuss the significance of building and maintaining a good credit history. A good credit rating can help them down the line when they start looking for loans, mortgages or other forms of financing.
It's also beneficial to set financial goals with your teenager so that they have an understanding of what their spending should look like. This can help them stay on track with their budget and avoid getting into debt in the future.
Benefits of introducing a credit card to your teen
Building responsible financial habits early on
Introducing a credit card to your teenager can aid in the development of responsible financial habits from a young age. By educating them on budgeting, saving, and managing debt, you can equip them with the necessary skills to handle money responsibly in adulthood.
Establishing a credit history and improving credit score
Another benefit of introducing a credit card to your teen is the ability to start building their credit history and improving their credit score. Once they have established a good track record with using the card responsibly, it will help them get access to better loan rates and higher limits when applying for other forms of financing in the future.
Learning about interest rates and responsible borrowing
Finally, having a credit card will help your teen understand the implications of borrowing money and how interest rates work. The sooner they learn about these concepts, the better prepared they will be when it comes to making larger financial decisions down the line.
Helpful tips when opening a credit card for your teen
Educate your teen about the basics of credit cards
It's important to educate your teen on the basics of credit cards. This includes understanding interest rates, checking their credit card statements regularly, and using their card responsibly. It's also important that they understand the long-term implications of irresponsible spending.
You should sit down with your teen and explain these concepts in layman’s terms and talk to them about the importance of being a responsible borrower.
Monitor spending and provide guidance when necessary
As a parent, it's important to monitor how your teen uses their credit card and provide guidance when necessary.
Make sure they understand the importance of staying within their budget and paying off their balance each month. You should also periodically review their credit card statements with them to ensure that all charges are accurate and there are no signs of fraud or identity theft.
Be aware of the account ownership
If you're looking to help your teen build credit, getting them a credit card can be a good option. However, if you decide to be a joint accountholder on their card, there are some things you should know. Once you're a joint accountholder, you cannot be removed from the account unless the card is closed. This can create problems for your child when they want to use the card independently or apply for a credit line increase in the future. They would have to close the account and lose the card's history.
At Purdue Federal Credit Union, we recommend against parents being joint accountholders on their teen's credit card. We don't report credit information for authorized users or joint accountholders to credit bureaus.
Credit cards can be a great way to teach your teen responsible financial habits and build their credit at an early age. Before you open an account, though, it’s important that they understand the basics of credit cards and money management concepts. With guidance and education, you can help your teen learn how to use a credit card wisely and develop responsible financial habits for life. Good luck!