I get a lot of questions from people wanting to know how old someone has to be to establish credit, as it is not uncommon to see teenagers pulling out a credit card to pay for purchases at the mall, nor is it uncommon for high school aged kids to periodically receive a preapproved credit card offer in the mail.
Generally speaking, to complete a valid application for new credit, the lender requires that you must have legal capacity to become contractually liable. In other words, this requires a borrower or co-borrower to be at least 18 years of age.
So how do minors under 18 have credit and/or a credit report?
The most common way people under the age of 18 get a credit card is by becoming an authorized user on one of their parent’s credit cards. This feature allows the minor to have the convenience of a credit card in their name while the parent still has control and contractual liability for making the payments on time. Many parents take advantage of this infrastructure as a means to help educate the minor on how to properly use a credit card.
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Although the minor is not contractually liable for payments, the card information is reported to the credit reporting agencies for both the primary (the parent in this case) as well as for the authorized user (the son or daughter in this case). An advantage of this is that the minor starts to build a credit history, which should help them get credit more easily once they have reached 18 years of age and can obtain credit on their own. On the flip side, any negative information (a missed payment or the carrying of high balances, for example) would be reported on both the primary and authorized user’s credit reports and could potentially negatively impact your credit rating.
Another potential concern: because the minor now has a credit report file, they may, as a result, be solicited for new credit—via preapproved credit card offers, for example. If this happens, you can contact the credit reporting agencies and request they place a freeze on the credit file to block lenders from accessing it.
The key factor here is to leverage the system so that the minor can learn how to use credit in a prudent manner and thus increase their access to affordable credit in the future.
[Related article: Is Your Kid Being Targeted for a Credit Card?]
Image: Dinkel, via Flickr.com