Have you ever considered getting a credit card for your child? Some parents find that there can be advantages to entrusting their children with a credit card, as responsible kids can use it to make small purchases and for emergencies. And when parents realize that they can leverage the convenience of credit cards to send their children on errands, they will soon be wondering how they can get their kids a credit card.
The Rules for Kids & Credit Cards
People under the age of 18 are unable to enter into a legally binding contract, such as a credit card agreement. However, there are some credit card issuers that will allow minors to be authorized cardholders under the account of a parent or another adult. Some card issuers require that the authorized cardholder be at least 13 or 15 years old while others have no age limitations. And of course, the primary account holder will always be responsible for repayment, not the authorized cardholders. You can contact your credit card issuer to find out its policy on adding a minor as an authorized cardholder.
Once children reach 18 years of age, they become legal adults and can become primary cardholders. However, the Credit CARD Act of 2009 placed restrictions on granting credit to adults under 21. The law requires that applicants 18 to 20 years old be able to show the ability to repay the loan, or co-sign with an applicant who is 21 years of age or older.
There Are Alternatives
Parents can give their children Visa, MasterCard or American Express prepaid gift cards as an alternative to giving their children a credit card. These debit cards require no application to be approved and offer some of the security and flexibility of credit cards. In addition, there are reloadable debit cards that allow minors to be cardholders on the same account. Some companies even market these products to parents as a way of offering their children a card while closely limiting and monitoring their spending.
Best Practices for Giving Credit Cards to Children
Allowing a child to use a credit card can be a good decision, but only when it rests on a foundation of personal finance education. Parents should consider opportunities to discuss how money is earned, spent and saved, even when their children are very young. Once children have demonstrated how to use small amounts of cash carefully, and parents feel that their children are ready to learn how to use credit responsibly, it may be time to acquire a credit or debit card in their name.
At first, parents can maintain possession of the card, giving it to their children for occasional purchases that are agreed upon in advance. Parents can ask for receipt and monitor spending online to verify the card was only used for the intended purchases. After demonstrating their trustworthiness, parents can allow their children to carry the card with them, only using it with their expressed permission.
Another idea is to link children’s credit card purchases to their personal funds. For example, a child could buy a toy or a candy bar, and the parent can deduct the cost of their purchase from their savings or allowance. This exercise can teach children the relationship between the charges they make and the necessity of paying for it.
You may also want to show children your credit card statements and teach them how to make payments. Eventually, as children become adults and can qualify as primary account holders for their own credit card, like a student credit card, parents can still work with their children to reinforce responsible habits of credit use.
Teaching children about money is a vital part of raising responsible adults. As you consider credit card options for your kids, consider also teaching them about credit scores and reports, including what’s actually in a credit report. (You can get two free credit scores, updated monthly, on Credit.com, and you can request your free annual credit reports at AnnualCreditReport.com.)
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Image: Susan Chiang