Today’s teens have grown up in a plastic culture and may look to obtain a credit card of their own at an early age. Credit cannot be issued to teens under the age of eighteen though. Tighter lending rules now mean that those under 21 also require an adult to stand as a co-signer unless they can provide proof of their own income. Thus the easy credit card offers aimed at youngsters and students have fallen away recently.
Parents may grant their teens to be authorized card holders on their own credit card accounts, and thus keep an eye on teen spending and money management skills. This can be useful if the named card holder has a good credit rating, but if their own handling of credit is irresponsible this can in fact reflect badly on the credit score of the authorized user.
Whilst there is much debate as to whether teens should be allowed credit cards or not, they are a useful tool for youngsters to begin to establish their own credit history. This is either best achieved by using a parents account or by obtaining a secured credit card.
Wasting money on expensive pre paid credit cards does not enable a solid credit history to be established as naturally pre paid cards offer no actual credit facility, so cannot reflect credit payments. Parents should be especially careful that their teens do not fall for fad celebrity cards such as the one recently launched by the Kardashian sisters, as the high cost of using them is extortionate.
Low fee secured credit cards are an excellent way for teens to learn responsible credit card use. The cards offer credit equal to a secured deposit amount, which also teaches the teen the value of saving, and prevents the possibility of the teen exceeding their credit limit. Once an established pattern of responsible credit card use is established the card holder can transition to an unsecured credit card.
It is advisable that if teens do look to obtain a secured credit card that they avoid the ones aimed at those who need to rebuild a bad credit reputation. Student credit cards are more suitable and some offer additional features such as rewarding card holders who pay on time, and offering statement credits.
The best of the student credit cards on offer are Capital One, Discover and Citi Dividend. Alternatively teens should approach the bank where they have an established checking facility if already in employment.
The APLUS study into student finances revealed that the larger percentage of students do not handle credit cards wisely, thus parents should not automatically consider standing as a co-signer for teen credit cards. The primary benefit of teens using credit is to establish a good credit score for future benefit and if credit is issued too soon then its use may well prove to be detrimental.