It’s a big step, but getting your teen a credit card is also a smart way to prepare them for the responsibilities of adulthood.
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At first glance, the idea of giving your teen a credit card may make you break out in a cold sweat. Teens aren’t exactly known for their impulse control, and even if your teen usually acts responsibly, there’s still that anxiety that they’ll see a credit card as a ticket to a shopping spree.
That being said, making your teen an authorized user and getting them a credit card connected to your account can be one of the most effective ways to prepare them for the future. If you go about it the right way, there are several benefits for you and them.
1. You can teach them to use credit responsibly
Many young adults end up buried in debt and damage their credit scores because they used credit cards without understanding the potential repercussions. Once that happens, it can take years to pay off the debt and repair damaged credit.
By getting your teen a credit card while they’re still living under your roof, you can explain how it works, what the potential dangers are, and how their credit card usage will affect their credit score.
2. It can help them build a positive credit history
It takes time to build a good credit score, and this can be a difficult process for young adults who have thin credit files. By making your teen an authorized user on your account, their credit file will reflect that account’s activity. That means:
- Every on-time payment you make will count as payment history for them.
- If you keep your credit utilization low, that will benefit your teen.
- The age of your credit card account will get added to your teen’s credit file, and accounts with a long history are good for a person’s credit.
You’re essentially giving your teen a leg-up when they reach adulthood, because they won’t be starting from scratch with their credit.
3. They’ll have a payment method to use in case of emergencies
Hopefully your teen doesn’t have to use their credit card for an emergency. But if their car breaks down unexpectedly or they end up in some other situation where they need money right away, a credit card could make things much easier for them. Knowing your teen is prepared in case of emergencies can also give you peace of mind.
4. You can monitor their spending
Since you’ll be able to see all the transactions your teen makes with their card, you can get an idea of how they spend money. If they’re doing something that could be problematic later, such as spending every dollar shopping and never saving, you can explain to them why this is a bad habit.
You don’t want them to feel like you’re micromanaging, but you can still find the occasional coachable moment and put them on the right path with their finances.
5. It’s more convenient and secure for both of you
When it comes to payment methods, credit cards are as good as it gets. Many credit cards offer purchase protections, and if your teen loses their credit card, you can just cancel it and get a replacement. That’s a much better outcome than if your teen was carrying cash.
A credit card is also convenient when you want to cover a purchase for your teen, as they can just put it on the card without you needing to give them cash.
6. You can earn rewards on their spending
How to set up your teen with a credit card
If you already have a credit card, you can most likely add your teen as an authorized user on that account. But it may also be a good time to research the best credit cards to see whether you want to upgrade, as you can typically add authorized users to a new credit card during the application process.
Keep in mind that some cards charge fees to add authorized users. There are many cards that don’t, and if that’s something you want to avoid, you can always look at no-annual fee cards.
Once you’ve gotten a credit card for your teen, you should lay out some ground rules for them. Smart ground rules include:
- They pay for all their charges -- Don’t make the mistake of covering for them if they run up a bill. Let them know that they’ll be paying for anything they buy, and that if they can’t pay it off when it’s due, they’ll need to cover the interest.
- They must stick to a credit limit -- It’s best to give them a low limit to start. Some credit card companies, such as American Express, let you set spending limits on authorized user cards. You should also advise them to try not to use too much of that credit limit.
Most importantly, you should be monitoring their credit card usage regularly so that you can catch any potential problems. Give them sound advice to start, keep an eye on them to make sure they know what they’re doing, and your teen will be well on their way to developing responsible credit habits at an early age.