Should you get a credit card for your child?

Every parent knows they have to provide the essentials: food on the table, on the roof and clothes on their back. However, what sometimes goes through the cracks is to instill good financial habits, especially when it comes to credit.

Just over half of parents, according to recent study T. Rowe Price Study, I believe it is important for children to have a credit card in order to learn how to manage their money. Yet the way people deal with credit can have a profound impact on their lives. When it comes time to buy big ticket items like cars and houses, lower credit scores mean higher interest payments if people can get a loan. And credit history represents 15% of a credit score – the longer they process credit, all other things being equal, the better borrowing banks think they are.

It’s important to start at least one conversation about responsible spending and do so well before your kids enter college. But should you really get a credit card for your child? And if so, what is the correct age? I turned to credit experts for advice, asking them to answer a few key questions:

Is it a good idea?

Robert Harrow, analyst at ValuePenguin.com, began to think about the matter after the birth of his niece last year. Rather than clothes, which she would soon get too big, or bulky gadgets, he wondered: why not grant a credit history? “I thought if I were to make her an authorized user on my credit card, I would set her up for life,” says Harrow. “I would be the best uncle in the world.”

Harrow ultimately decided against the idea, saying it was just too early. “If you are an authorized user on an account, the age of that account appears on your credit history, regardless of when the authorized user was added,” says Harrow. So if you have a long-standing account, adding your child as a user would be just as helpful if you are expecting him or her to be in high school.

But some parents might have other concerns about teaching kids to spend now, to pay later. Start by talking to your kids about the value of money, as well as spending and budgeting habits, says Scott Moffitt, president of Summit Financial Group, based in Loveland, Ohio. He recommends that you start talking about credit cards only after your kids have demonstrated maturity and responsibility in other areas of life – and even then, with a strong warning about the consequences of overuse. “You need to have a conversation with kids early on to help them understand why going into prolonged credit card debt is bad,” he says.

How should you configure it?

Even if you want to give your kid the keys to your wallet, what’s the best way to go? Thanks to CARD law of 2009 a child must be over 21 or have a stable income to be eligible for their own card. So if you want your child to start earlier, you have two options: make your child an authorized user on your own card or co-sign the card application.

“It’s probably much easier to add a child as an authorized user than to get them a secured credit card, which would require a full application process, a security deposit, and the parent’s co-signature if the child was over 13 and under 21. Says Ben Woolsey of CreditCardForum.com.

Going the authorized users route also allows your child to benefit from your credit history, as long as your issuer reports authorized users to the credit bureaus. (Some don’t.) “You essentially allow them to benefit from the performance of the account without imposing on them liability for the debt,” says credit expert John Ulzheimer. “And if something goes wrong and the card fails or gets too heavy, all you have to do is remove the authorized user’s name from the account and it will be removed from their credit reports. is like having a credit card with training wheels. “

But there is an obvious downside: you are now responsible for your child’s purchases. No matter what you and your child have agreed upon in terms of who pays for what, the Issuer will hold you, the parent, responsible for anything charged to the Card. If your child is accumulating a lot of debt, you have no other recourse but to pay it off.

The alternative here is to co-sign a separate card, one that will allow your child to start building a credit history from scratch. However, you still have to pay the bills, which is why some experts recommend using what is called a secure card. Either you or your child start by depositing money up to the credit limit as collateral. If your child hits the cap, more credit and more responsibility for you.

“A secure card is a safer bet – especially if it’s the child’s money deposited on the card,” says Sean McQuay of NerdWallet. Look for a secure card that doesn’t have an annual fee.

What is the correct age?

Once you’ve considered your options, decide on the right time to start your child. Is high school appropriate? Middle school? Do I have to get a credit card for my 2 year old?

In truth, there is no one answer; every child is different. However, there may be practical considerations. Many banks do not allow you to add a young child as an authorized user; Discover, for example, requires authorized users to be at least 15 years old. (On the other hand, Citibank has no age limit.) Check with your issuer to see if your child is old enough.

More importantly, there is emotional maturity. “You should talk about where this money is coming from,” Moffitt says, whether it’s a regular allowance, an after-school job, or yourself. Once you feel your child is ready for a card, Moffitt says you need to say what you expect the card to be used for (gasoline for the car, for example) and then keep a close watch on spending online. .

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