Because of their credit-building benefits and convenience, it’s understandable that teens might want to get an early start with credit cards – and that their parents might encourage them to do so. But is that possible?
You can legally get a credit card once you’re 18. Yet there’s a parental-supervision option for teens younger than that — and complexities for teens even after they turn 18.
Option 1: Getting added to a parent’s card as an authorized user
Authorized users have charging privileges on the account, but no responsibility for the balance. The age at which a teen can get added as an authorized user to an account varies by issuer. American Express (a CreditCardForum advertising partner), for example, sets the minimum age at 15, according to a spokesperson. Wells Fargo, Bank of America, Citi and Chase do not have minimum age requirements, according to spokespeople from those banks.
Authorized users under 18 are too young to have credit files and will therefore benefit only from the learning and convenience aspects of card ownership. Yet those over 18 will get credit-building benefits from the card, assuming the issuer reports authorized user relationships to the credit bureaus (and assuming the parent pays the balance on time).
“It’s an opportunity for the child to get familiar with how credit cards work,” says John Szalicki, counseling manager at Cambridge Credit Counseling. “They get the benefits of a card without 100 percent responsibility.”
Yet just because the bank won’t hold the teen responsible doesn’t mean the parents shouldn’t, Szalicki says. Parents and teens need to sit down and talk about the following before the teen is added to the account:
- Worst-case scenarios: If parents have had bad experiences with credit in the past, they should lay it bare.
“Parents shouldn’t be embarrassed to tell their 17-year-old, ‘When I was 18 or 19, I misused credit cards, but now I’m older and here’s what I’ve learned,’ ” Szalicki says.
- Spending limits: Some credit card providers (such as American Express) allow main account holders to set custom limits for authorized users, but many other issuers don’t.
Regardless, parents need to determine a limit on how much the teen can spend, what the teen can buy with the card and the consequences for failing to comply, Szalicki says. He also recommends that parents limit their risk by adding their child to a lower-limit card.
Whatever limit they set, parents need to stick to it.
“Credit card companies aren’t lenient,” Szalicki says. “Teach [your teens] they have to earn their way to a larger credit line. And only if they show they can be responsible, lengthen the leash, so to speak, and give them more flexibility.”
- Who pays: Some parents may pay for their teen’s charges (within reason), while others might require that their teens pay for all the charges they make. In the latter case, parents can create a good learning experience by requiring their teens to give them the money owed before the card’s due date and then asking them to observe while a parent pays the bill online, Szalicki suggests.
Option 2: Getting a card in your own name
Adults (18 and over) can get technically get cards on their own. Yet the CARD Act of 2009 adds some roadblocks for anyone between 18 and 21:
In short, if you don’t have “independent means of repaying” your balance, you need to get a co-signer.
So what, exactly, constitutes “independent means of repaying”? It depends on the issuer.
For example, here are Discover’s requirements for its student cards:
We reached out to a few other issuers to see what types of income they may consider before extending credit to a consumer under 21.
Bank of America: Income from a job (such as a summer or part-time job), but NOT student loans, grants or scholarships.
Wells Fargo: Income from employment (including part-time, seasonal, irregular, military and self-employment); money regularly deposited into an account owned by the young applicant; public assistance; child support; student loans to the extent that they exceed the amount owed for tuition and other expenses.
Citi: Job income; loans, grants, scholarships in excess of a student’s educational expenses (tuition, fees, books, etc.); monetary contributions (such as an allowance from parents) deposited regularly into the person’s bank account.
Keep in mind none of these sources of income is a guarantee that you’ll be accepted, as issuers consider many factors, including your credit history.
For those who go the co-signer route, issuers handle that relationship differently. But, in general, both parties share responsibility for payment and both will suffer credit damage for non-payment.
Think you have a shot at a card without a co-signer (thanks to income from one of the sources above)? One option, Szalicki says, would be a secured card. This type of card requires a deposit in advance to secure a credit line, which can make issuers more forgiving of a limited (or troubled) credit history. Just keep in mind that secured cards often have annual and set-up fees. For college students, student cards are another good option. Eager to begin a life-long relationship, issuers may forgive a thin credit history and issue a student card with a low limit. Some even offer rewards.
If you manage to get a card all on your own before you’re 21, congratulations — just make sure you make it into a solid foundation instead of a pit of debt. Szalicki recommends charging a couple small living expenses every month (gas, for example), keeping your balance low and paying in full. If you need the card for something more expensive (such as emergency car repairs) and can’t pay in full, pay as much as you can over the minimum.
“The goal is to pay it off every month, but if you can’t, I’d go 60 days, tops,” Szalicki says. “Even 90 days may not be terrible with a $500 balance, but that’s behavior you don’t want to continue. Three or four months can easily become six months, and that can become 12.”
Alternative option: Using a prepaid card
Prepaid cards aren’t credit cards, but they offer the convenience of plastic. Because you have to load money on to the card before you can use it, it’s impossible to spend more than you have. However, they typically carry fees, and they won’t help you build credit. This one has reasonable fees, but reloading it can get expensive without a bank account.
Updated Oct. 25, 2016