One way to educate a child under 18 about credit and money management is to help him gain access to a credit card. Not only do you help your child learn about paying his bills and being careful about what he charges, but you also give him these valuable skills before he leaves home and possibly ends up getting into credit card debt.
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 says applicants under the age of 18 cannot get a credit card on their own, even if they have a job or verifiable income with which to make the monthly payments. Teenagers must wait until they turn 18, when they’re old enough to sign a contract, to apply for their own credit card. Applicants must prove they make enough money to pay the bill. Even then, kids under 21 must ask their parents to co-sign for the credit card.
The only way parents can give their child a credit card prior to turning 18 is to add him to their own credit card account as an authorized user. Adding your child as an authorized user does not affect your credit score in any way. It does help your child start establishing credit, since activity is typically reported to the credit reporting agencies. If you do not keep up on payments or accumulate a high balance, though, your child’s score could be negatively affected.
Responsibility for Charges
Adding your child as an authorized user means you’re responsible for any charges he racks up. The key is to keep an eye on your child’s activity so it doesn’t become a problem. Some card issuers allow you to set spending limits on credit cards tied to your account, so ask your card issuer how to do that with your teenager’s card. Also, keep track of your child’s purchases by signing up for an online account with your credit card issuer. That way, you can see instantly what charges are posting to the account.
If you want to teach your child how to handle a credit card, but prefer not to give him a real card, use a prepaid card. Prepaid cards are used like credit cards, but they’re actually debit cards. That means the “credit limit” is based on how much cash you load the card with. Your child can then learn how to track what he buys and check his account balance. If your child has a part-time job, he can add money to the card himself for more spending power.
- CNN Money: Under 21? Getting a Credit Card Just Got Tougher
- The New York Times: Credit Card Limits for Youth Can Be Opportunity for Parents
- Experian: Adding An Authorized User to Your Account Won’t Hurt Your Credit Scores
- Consumer Financial Protection Bureau. "§ 1026.51 Ability to Pay." Accessed March 3, 2020.
- Experian. "Will Being an Authorized User Help My Credit?" Accessed March 3, 2020.
- Experian. "Authorized User vs. Cosigner." Accessed March 3, 2020.
- FICO. "Fair Isaac Innovation Will Restore Authorized User Accounts to Calculation of FICO 08 Scores." Accessed March 3, 2020.
- VantageScore. "Did You Know? How Students Can Build Credit." Accessed March 3, 2020.
Nancy Wagner is a marketing strategist and speaker who started writing in 1998. She writes business plans for startups and established companies and teaches marketing and promotional tactics at local workshops. Wagner's business and marketing articles have appeared in "Home Business Journal," "Nation’s Business," "Emerging Business" and "The Mortgage Press," among others. She holds a B.S. from Eastern Illinois University.