What to Know Before You Get Your Child a Credit Card

Getting a minor a credit card comes with risks, such as the possibility of overspending or accumulating debt. However, there are several reasons why you might consider getting your child a credit card.

4 Reasons to Get Your Child a Credit Card

1. Build Credit History: Having a credit card (and using it responsibly) can help your child establish a credit history, which is essential for future financial opportunities, like getting a loan or a mortgage.
2. Learn Financial Responsibility: Opening a credit card in your child’s name can be a great opportunity to open up a conversation around smart financial habits like saving, budgeting and making payments on time.
3. Emergency Expenses: A credit card can act as a safety net in case of emergency.
4. Accumulate Rewards: Many credit cards offer deals, rewards or cash back for purchases, which can be a perk for spending that your child would otherwise partake in.

However, there are several things you should know to ensure that you and your child are prepared for this responsibility.

Credit Card Age Requirements

In most states, a child must be at least 18 years old to apply for a credit card on their own. If your child is under 18 years of age, you may be able to cosign on the card. 

Or, you can add them as an authorized user on your own credit card account. However, before you do so, you should have a conversation about spending expectations – because, as the primary on the account, you will be responsible for the balance and payment management.

If you are worried about your child’s spending, you can add them as an authorized user, but not provide them with the card to use for purchases.

Credit History

A credit card issuer will typically look at a person’s credit history before approving them for a credit card. If your child has no credit history, they may need to start with a secured credit card.

A secured credit card requires the cardholder to make a security deposit as collateral for the credit limit on the card. Typically, the credit limit on a secured credit card is equal to or slightly less than the amount of the security deposit. One important thing to note about secured credit cards is that they often come with higher fees and interest rates than traditional credit cards. If you go this route, compare different options to find a card with the best fees and rates.

Spending Limits

When determining what spending limit your child will have on their credit card, don’t go too high – ensure that your child can afford to pay off the maximum amount. Otherwise, excessive debt could follow.

On the topic of spending, you may want to have a conversation with your child about the difference between wants and needs, as well as how to avoid making impulse purchases. A simple way to accomplish this is by setting a time to review their purchases each month. At the meeting, discuss the rationale behind each purchase and discuss a plan for repayment.

Interest Rates and Fees

As with all credit cards, it’s important to read the terms and conditions of the card very carefully, including special attention paid to the interest rates and fees. 

You should also educate your child on how interest rates work, and how to avoid interest rate charges by paying off the credit card balance every month.

Monitoring

Parents should monitor their child’s credit card activity regularly to ensure that they are using it responsibly and not overspending. 

You can easily monitor your child’s credit card account by setting up alerts or notifications for purchases or unusual activity.

In closing, a credit card is a great financial tool for building credit and teaching financial responsibility, but it’s important to educate your child about the responsible use of credit to ensure they are ready to take on the responsibility. 

Related: 6 Ways to Improve Your Credit Score

If you have any questions about credit cards, financial literacy, or anything else not covered in this article, our team of financial advisors are available. You can book a complimentary consultation below.