If youâ€™re the parent of a teenager, you might wonder if now is the right time to help them open a credit card. It can be hard to decide if theyâ€™re ready to take on the responsibility that comes with having a credit card since you need to trust that your teen has the restraint to limit spending and pay on time.Generally, we recommend introducing your teen to credit as soon as you can since credit is such a large part of life as an adult â€” you need credit to take out loans, apply for a mortgage and even make certain purchases. Plus, itâ€™s important for your teenager to learn how to manage credit responsibly so they can build good credit.
That doesnâ€™t mean they have to go at it alone.
Typically, you have to cosign a credit card if your teen is under the age of 21, unless they can provide proof of income on their own. You may be hesitant to take on the added risk of cosigning, but there are alternative options such as adding your teen as an authorized user to your credit card.
When youâ€™ve decided itâ€™s time for your teen to start building credit, you have three options: add your child as an authorized user, open a secured credit card or open a student credit card. Below, weâ€™ll describe each of your options and include potential risks associated with each option.
If youâ€™re hesitant for your teen to open their own credit card, adding them as an authorized user on your credit card account may be the best option. You can easily monitor their spending through statements and online banking. While they piggyback off your credit, you can continue to benefit from the same perks your card offers and even earn rewards on their purchases â€” if you have a rewards card.
How it works: You can add your teen as an authorized user to your account by logging in to your online account or calling the number on the back of your card. The information required typically includes their name, birthday and SSN. After adding your teen as an authorized user, they will receive their own card that is linked to your account. They can use their card to make purchases just like you would.
Risks: When you add your teen as an authorized user on your account, youâ€™re 100% liable for all charges they make. That means if they overspend, you have to be able to pay the bill when it comes. And, if youâ€™re unable to pay the bill, both your credit score and your teenâ€™s will suffer.
Read our complete guide to adding an authorized user to your credit card, which includes the benefits and drawbacks, plus how you can go about adding your teen as an authorized user with the major credit card issuers.
If your teen is ready for their own card, a secured credit card is a good place to start.Â A secured card is similar to a traditional â€śunsecuredâ€ť card, except it requires a security deposit to access credit. Your teen can build credit by charging a small amount each month to their secured card and paying it off in full and on time each month. They can eventually upgrade to an unsecured card, and weâ€™ll explain how below.
How it works: Once you choose the secured card you prefer, youâ€™ll open an account under your childâ€™s name. If your teen is approved, the bank will ask for a security deposit. Most secured cards require deposits of at least $200, but there are secured cards with security deposits as low as $49. That deposit typically becomes their line of credit. For example, if the minimum security deposit is $200, the line of credit will also be $200.
The deposit is refundable if the account is paid off and closed, or transitioned to an unsecured card. There are also some cards that allow cardholders to access a higher credit limit without depositing more money, if consistent bill payments are made.
Besides the security deposit, a secured card is just like a regular credit card. Purchases and payments your teen makes with their secured card are reported to the three credit bureaus â€” TransUnion, Equifax and Experian. You can check that your teenâ€™s credit activity is reported to the bureaus by requesting a copy of their free credit report at annualcreditreport.com. You can request one report from each bureau every 12 months, and we recommend spacing them out over the course of a year â€” so requesting one copy every four months.
Risks: While a secured card can be a great way for your teen to build credit, there are a few potential risks. If your teen misses a payment or pays late, they will incur a late payment fee. Plus, they will also be charged interest on any balances that remain after their statement due date. Thatâ€™s why itâ€™s key to inform your teen of good credit practices, such as paying on time and in full each billing cycle. Autopay is a great feature that can help your teen avoid missed payments and interest charges.
Transitioning from a secured to an unsecured credit card: The transition from an unsecured card to a secured card is fairly simple for the cards mentioned below, with many conducting periodic reviews of your account to evaluate if you can move to an unsecured card. And, when youâ€™re transitioned to an unsecured card, youâ€™ll receive your security deposit back. Another way to be refunded the deposit is by paying off any balances and closing the card â€” though we donâ€™t recommend closing the account since that jeopardizes your credit score.
We recommend the following three secured cards that can offer your teen various benefits beyond building credit â€” they may be able to earn cash back, make a low security deposit or have a low APR.
The Discover itÂ® Secured isnâ€™t like most secured cardsÂ â€” it offers a cashback program and a simple transition to an unsecured card. Starting at eight months from account opening, Discover will conduct automatic monthly account reviews to see if your security deposit can be returned while you still use your card. Unlike most secured cards that lack rewards, this card offers 2% cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter. Plus, 1% cash back on all your other purchases. And, Discover will automatically match all the cash back you earn at the end of your first year. This is a great added perk while you work on building credit.
The Capital OneÂ® Secured MastercardÂ® is great for people who may not have the cash available for a $200 security deposit. The minimum security deposit is $49, $99 or $200, based on your creditworthiness. If you qualify for the $49 or $99 deposit, you will still receive a $200 credit limit. This is a great feature, plus you can get access to a higher credit line after making your five monthly payments on time â€” without needing to deposit more money. This card also comes with Platinum Mastercard benefits that include auto rental and travel accident insurance, 24-hour travel assistance services and more.
While the Savings Secured Visa Platinum Card from State Department Federal CU has a slightly higher security deposit at $250, it does have one of the lowest APRs of a secured card at 13.74% Variable. This may come in handy if you find yourself carrying a balance month to month â€” but we strongly encourage you to pay each bill on time and in full to avoid interest charges. This card is available to everyone regardless of residence by joining the American Consumer Council for free during the application process.
When your teen goes to college, theyâ€™ll need a convenient way to pay for purchases. While cash and debit cards can be used, both of those options donâ€™t help your teen build credit like a student credit card does. Your teen can build credit by using a student credit card to make purchases and paying their statements on time and in full each month.
How it works: A student credit card is the same as a regular credit card but typically has a lower credit limit. The lower limit is due to the smaller income students have compared with adults. Your teen can use their student card just like youâ€™d use your card. However, student cards tend to have higher interest rates than non-student cards â€” making it all the more important for your teen to pay on time and in full each month.
Some student cards offer incentives for students to practice responsible credit behavior, or even maintain good grades. And, when your teen graduates college, most student cards automatically upgradeÂ to the non-student version of the same card. So, they can continue to benefit from the same perks.
Risks: Overall, a student card can be a great asset for your teen to have in college, but there are a few risks to beware of. If your teen overspends so much that they max out their credit limit, they risk harming their utilization rate â€” which is the amount of credit they use divided by their total credit limit. For example, if your teen has a $500 credit limit and uses $400, their utilization rate would be 80% ($400/$500). Thatâ€™s very high, and we recommend keeping utilization below 30%.
Another risk is that student cards donâ€™t require a cosigner, so your teen is fully responsible for the card â€” meaning you, as the parent, donâ€™t have control over their actions. The best you can do is advise them on the proper way to use a credit card and hope they are responsible.
The following three student credit card offer numerous benefits for your teen that extend further than simply building creditÂ â€” all cards have a rewards program and your teenager may receive additional rewards for good grades or paying on time.
The Discover itÂ® Student Cash Back is our top pick for a student card since it has a wide range of benefits. There is a cashback program where you can earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com or wholesale clubs up to the quarterly maximum each time you activate, plus 1% unlimited cash back automatically on all other purchases. Plus, new cardmembers can benefit from Discover automatically matching all the cash back you earn at the end of your first year. Another unique perk is the good Grades Reward: Receive a $20 statement credit each school year that your GPA is 3.0 or higher, for up to five consecutive years.
The JourneyÂ® Student Rewards from Capital OneÂ® has a straightforward cashback program, ideal if you donâ€™t want to deal with rotating categories or activation. Earn 1% cash back on all purchases; 0.25% cash back bonus on the cash back you earn each month you pay on time. The bonus you receive is a great incentive to pay on time each month, which you should be doing regardless of rewards. If you receive a low credit limit, the Credit Steps program allows you to get access to a higher credit line after making your first five monthly payments on time.
The Bank of AmericaÂ® Travel Rewards Credit Card for Students allows you to earn unlimited 1.5 points for every $1 you spend on all purchases everywhere, every time and no expiration on points. This is a simple flat-rate card that doesnâ€™t require activation or paying on time to earn the full amount of points per dollar, like the other two cards mentioned above. If you plan to do a semester abroad or often travel outside the U.S., this card is a good choice since there is no foreign transaction fee. Students with a Bank of AmericaÂ® checking or savings account can experience the most benefits with this card since you receive a 10% customer points bonus when points are redeemed into a Bank of AmericaÂ® checking or savings account. And, Preferred Rewards clients can increase that bonus 25%-75%.
Introducing your teenager to credit as soon as possible is a great way to get them prepared for all the future credit products theyâ€™re bound to encounter in life. Practicing responsible credit behavior with a credit card or even as an authorized user can help your teen establish credit, which is necessary for taking out student loans, mortgages and other credit products. Plus, having a good credit score is key to getting the best rates and terms for credit products.
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