Emancipated Minors may get Freedom, but Don't Count on Credit

What curfew-bound, rule-burdened teenager hasn't fantasized about cutting the apron strings and striking out on his own, sans parental supervision? In a handful of situations, a minor might be able to do just that through emancipation, a legal proceeding that grants adult status to a teen and frees her to make her own medical decisions, sign contracts and otherwise manage her life -- and finances -- independently.

Drew Barrymore did it. So did actresses Michelle Williams, Laura Dern and Alicia Silverstone. A teenager who's essentially asking to divorce her parents must prove she has a good reason for it, such as a dysfunctional family, a need to work adult hours or her own marriage and children to support. "There are instances when there's a child actor or someone like an Olympic athlete, and the parents are managing their assets, and there's a concern that they're not acting in their best interest," explains John McManus, an attorney and owner of McManus Legal, based in New York City. "The child also has to show that, despite their chronological age, 'I am deemed to be independent and ready to make decisions on my own.'"

Of course, emancipation isn't limited to child stars with hoards of money, but it helps. That's because teens who file for emancipation must prove they have the financial stability to go it alone, in the form of an income that meets expenses, and the money savvy for grown-up responsibilities such as paying bills and filing taxes.

And there's the rub. While emancipated minors can legally enter into contracts for themselves -- for instance, sign a lease or open a cellphone account -- they lack the credit history that makes companies and landlords want to do business with them.

In a survey of several major card issuers, including Chase, Capital One and American Express, CreditCards.com found no card issuer will allow an emancipated minor under 18 to open his or her own credit card. As Sukhi Sahni, a Capital One spokeswoman, explains, "Capital One only lends to consumers who are 18 and older -- no exceptions." (See accompanying table.)

Even turning 18 doesn't make it easy to snag a credit card. The Cradit CARD Act of 2009 eliminated the days when credit card applications were tossed like Frisbees around college campuses. Now applicants younger than 21 who desire to be primary cardholders must have a co-signers or prove that they have their own steady sources of income.

Financial stability for emancipated minors

How emancipated minors manage their financial lives is hazy, since the situation is so rare. "Emancipation is very, very unusual," says McManus. "[The bar] has very little experience in the mechanics of it, because it's just a very infrequent thing to see." In some states, there aren't even set procedures for allowing minors to petition for independence, let alone sufficient case history to establish guidelines for independence.

But there are things that minors, emancipated or not, can do to build credit and establish a solid financial footing for themselves.

1. Become an authorized user. For minors who still have a decent relationship with parents -- such as actress Jaime Pressly, who was emancipated at age 15 so she could model in Japan without traveling with a guardian -- being added as an authorized user to a parent's credit card account can build financial responsibility and a credit history before true adulthood. "Emancipated or not, the whole purpose of learning to use credit cards is learning that a credit card is a loan, and you have to live within your means or below your means, not use a credit card to live beyond your means," says Gigi Collins, a New Jersey-based financial coach for teens. "A credit card is not a chance to go out and overspend or buy things you can't afford." Starting with a prepaid card can provide some of the benefits while limiting the potential damage of mistakes.

2. Sign a contract. The linchpin of legal adulthood is the ability to sign contracts. While credit card companies don't make that easy for teens, renting an apartment or paying a utility bill on time will help build a solid credit history, too. If you're under 18, you may have to shop around for companies willing to work with you, but once you find them, ask that your (successful) payment history be reported to the credit bureaus. Even if you don't have an official guardian, you may consider asking a trusted adult to co-sign contracts for you, to make it easier logistically.

3. Get a debit card. Swiping a card can offer a measure of convenience, and for some purchases it's necessary. An emancipated minor can have the credit card convenience by using a debit card associated with a checking account. Shop around to find a bank that's unfazed by your youth.

4. Talk to your financial aid adviser. "A student loan is a really good credit record," says Collins. "Credit card companies and employers will see you have a student loan and you started paying on it. That means you're a good risk." While it's unusual for students under 21 to be considered independent, "a financial aid administrator can consider special circumstances for students who are unable to get information from their parents," says Patricia Christel, a spokeswoman for Sallie Mae, the giant student lender. By providing emancipation documents, a minor college students can negotiate the exclusion of parental information from their Federal Student Aid application (FAFSA), so that the expected parental contribution will be $0.

5. Get help. Anyone familiar with adolescents might scoff at the prospect of cutting them loose to be independent. "My [teenage] son can't even remember simple things that impact his life," laments Collins. "I can't imagine if he were saying, 'I forgot to pay the electric bill, they cut off my electricity.'" For that reason, perhaps the best advice for the Drew Barrymores of the world is: Get help. A professional financial adviser can help you navigate even the minutia of financial independence, so that when you're old enough for a credit card, your financial history will be squeaky clean.