Everyone from Dave Ramsey to your neighbor down the street has an opinion about whether teenagers should have credit cards.
But the fact is many already do. According to a TransUnion survey, 19% of teens have a credit card.
If you want to introduce your child to the world of credit while being mindful of its dangers, keep reading.
3 ways your teenager can access credit cards
Thanks to the Credit CARD Act of 2009, getting a credit card at 18, 19, or 20 is no piece of cake. Anyone under 21 must have a cosigner over 21 or their own financial means (savings or income) to open a credit card. The cosigner agrees to repay the debt when the borrower can’t.
There are three ways your teen can gain access to a credit card:
- You can add them as an authorized user on your card: By adding your child to an existing card, you can help them build credit without giving them their own account. Many credit card issuers don’t require your child to be a certain age to be added as an authorized user.
- They can apply for a secured credit card: When your child turns 18, you can help them apply for a secured credit card. Secured credit cards require the borrower to provide a security deposit to open an account. The deposit also acts as the credit limit.
- They can apply for a student credit card: Once your child enters college, they could benefit from a “starter” card that offers perks for students. For example, students with a Discover it card pay no annual fees and receive rewards for good grades.
Pros and cons of your teen using a credit card
According to a Wisconsin School of Business study, people who learn how to use credit cards early in life are less likely to have “a serious default in the future” and more likely to have a high credit score.
With that said, here are four pros and cons to consider before choosing a card for your teen.
Pro: they’ll learn how credit works
As an authorized user on your credit card — or the holder of their own card — your child will learn firsthand how credit works. Before they use the card, you can use your personal experience or a resource like The Jump$tart Coalition for Personal Financial Literacy to hammer home the concepts of APRs, fees, credit scores, and more.
Emphasize the fact that using a credit card is a form of borrowing by setting up your child with a debit card. Once they make their first payment from their checking account, they’ll understand that a credit card comes with a bill that needs to be repaid on time to avoid accruing interest.
Learning about credit also can teach them important financial lessons, such as how to spend wisely, how to budget money, and how to accumulate savings.
Con: they could abuse the card
You might be concerned that your teen will rack up costs thanks to impulse purchases. In fact, nearly 1 in 5 teens between the ages of 12 and 17 think it’s smart to use a credit card to buy something they can’t afford, according to a Credit Sesame survey.
Even if your teen understands that paying with a credit card is a form of borrowing, they might abuse the card after making purchases. They might make only the minimum payment on the card, for example, not realizing that carrying a balance from month to month allows the debt to snowball.
To combat this problem, you could use a mobile app like CardValet for real-time tracking of your child’s purchases. You also could set payment reminders on your calendar and your child’s calendar to ensure they pay their balance at the end of each billing period.
Pro: they’ll start to build credit
Having a strong credit score and lengthy credit history serves consumers well. It allows you to qualify for lower interest rates on private student loans for college, for example.
One of the pros of exposing your child to the world of credit is that you help them build their credit. Ensure that your child’s payments will be reported to the major credit bureaus. Ask your card issuer about its reporting before adding your son or daughter as an authorized user or helping them apply for their own card.
Con: they could harm your credit or their credit
As an authorized user on your credit card, your child could harm your credit if they use it irresponsibly. For example, if your teen makes purchases you can’t repay right away, you could become delinquent on your account.
One solution is to have an agreement with your teen to limit their use of the card to a specific amount each month. You also could forbid them from using it at all. That way, they can enjoy the credit boost without putting your credit at risk.
If your teen secures their own credit card, your credit won’t be at risk — but theirs will be. Ensure they don’t ruin their credit by staying on top of their purchases and checking in weekly to ensure they have a plan to make their monthly payments.
Have the credit talk with your teen
If your teen is driving, working, or paying for their necessities, a credit card might seem like a logical next step. It’s a practical and convenient financial tool for a young adult who’s gaining independence.
But just like you warn your child about other dangers, have a conversation about credit. Teach them how to avoid common pitfalls of using a credit card and how to review their credit report. The more knowledge you equip them with now, the less they’ll have to rely on you for financial help later.