Using a credit card requires a great deal of responsibility, and it’s not for everyone – even some adults. In case, you are planning to get your kid a credit card of their own, it’s important to have a conversation with them to determine if they’re ready for a credit card. And before you have a conversation with them, ask yourself, are you ready to give this financial obligation cum responsibility to them? In case, you and your spouse, and your child, agree to it, consider getting one for the kid. But before you move ahead, make sure you know everything about your kid’s first credit card.
Theright age to get your child a credit card depends on the reasons for getting itand whether your child is ready to manage it. A lot of parents prefer givingtheir child a credit card before they celebrate their 18th birthday. Here arethree key reasons why you might want to get a credit card for your kid.
It Can Help Them Establish a Credit History
Any credit account that lenders report to the three credit bureaus can affect your credit. And if your child is heading to college in the next few years, establishing a credit history sooner than later can help them immensely. For example, private student loan companies typically require a credit check and having some credit history can also help your child get their first student credit card. They may even be able to finance their first car without needing you as a cosigner.
Keep in mind that not all credit card issuers report authorized user account information to the credit bureaus. To find out if yours does, call the number on the back of your card and ask a customer service representative. Also, depending on which credit scoring model is used, your child’s authorized user status may not impact their credit as much as if they were to be the primary owner of the account.
You Can Teach Kids About Smart Credit Card Use
Creditcards can be dangerous if you’re not careful. If you can teach your childrenabout responsible credit card use, they’ll be less likely to make mistakes outof ignorance. Talk to them about the card’s annual percentage rate (APR) andhow credit cards typically charge higher APRs than other typical debts. Explainhow it’s important to avoid charging more to the credit card than you canafford to pay off each month. Also, show how you can avoid interest altogetherby paying off your credit card balance on time and in full. Teaching yourchildren these lessons in a training-wheel environment can help them developgood financial habits that will serve them well when they enter the adultworld.
They Can Use It in an Emergency
Ifyou gave your child a cell phone so they can call you in case of an emergency,why not do the same thing with a credit card? It’s unlikely that your son ordaughter will need to use the credit card often for emergencies. But it couldprovide you with some peace of mind knowing that they won’t get strandedwithout gas money. It’s a good idea to put rules on using the card, though, soyou both agree on what qualifies as an emergency expense. Also, you can teachyour child the value of saving up an emergency fund so you can immediately payoff any surprise credit card expenses that arise.
Startwith a Debit Card
Thebest time to put a card in your children’s wallets is in high school; however, insteadof a credit card, start them with a debit card that deducts the money directlyfrom a bank account. Whether it’s a weekly allowance or a paycheck from theirfirst jobs, they’ll get used to the responsibility of carrying a card and notbuying more than they can afford to pay for. To avoid overdraft fees, considerusing an account that offers overdraft protection or helps them with a systemto track their spending as they go.
Getthe Right Card
When it comes to choosing the actual card, have your child do the research and discuss it with you. There are many websites dedicated to the comparison of credit cards and the rewards they offer. Make sure your child reads and understands the fine print associated with each of the cards under review. In case, you find that your credit card issuer doesn’t allow you to get a credit card for a child under 18 as an authorized user, or has a minimum age requirement that’s too high, consider applying for a new credit card.
There are plenty of great rewards credit cards (like gas station credit cards and low limit cards) from top issuers that have no age minimum. Also, keep in mind that your child’s purchases as an authorized user generate rewards just like yours. So, getting a card with better rewards can make the arrangement more valuable for you.
Adding your son or daughter as an authorized user on your credit card can help them build credit and develop good credit habits. But if you’re not careful, you could be on the hook for purchases they’ve made, whether you approve of them or not. So make sure that you always keep an eye on how your kid is using the credit card. By examining your children’s monthly purchases and processing the rationale behind each one, you can help your kids gain insight into the impulsive thinking that can lead to spending more than they can afford.
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