Should I Get My 18-Year-Old a Credit Card?

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According to my credit report, I got my first credit card when I was 13 years old.

My mother made me an authorized user on her Kohl's store credit card account, and she never closed it. I might have bought a few pieces of clothing for myself in high school with that card, but I don't think I've even seen it in the last decade. And despite never using it and it only having a $2,500 credit limit, that credit card has been extremely beneficial to me as an adult.

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Getting your 18-year-old (or younger child) a credit card can sound scary, but it can set them up for a bright future when it comes time for them to apply for more credit as an adult. Credit card issuers like to see a good credit history. So do mortgage lenders and insurance companies. Even cellphone and cable service providers look at credit reports. Getting a credit card early can give young adults a head start on building their credit, so that it's available when they need it.

Make sure your 18-year-old understands how credit cards work

Credit cards aren't terribly complex tools. Neither are jackhammers. But in the wrong hands both can wreak havoc.

Make sure your 18-year-old understands the responsibility they need to practice with a credit card. If you're not setting a good example with your own credit habits, it's likely your 18 year old will exhibit similar bad habits. Make sure they understand the fees and interest they'll rack up if they don't pay the bill in full on time every month.

The good news is you can put limits in place, so that if they do mess up, it doesn't hurt too bad. Eighteen-year-olds (as well as 19-year-olds and 20-year-olds) require a co-signer to get their own credit card. The co-signer approves the initial credit limit, and the co-signer is required to sign off on any credit limit increases. You can set a low credit limit for your 18-year-old ($500 or $1,000), so that they can't spend any more than that before that shiny plastic rectangle stops working.

What to look for in a credit card for your 18-year-old

The ideal first credit card is one your 18-year-old will be able to hold onto indefinitely. The biggest key is that it carries no annual fee. If they have to pay a fee just to keep the card around every year, it's more likely they'll cancel it sooner or later. (Have them read this article if you already made a mistake and got a credit card with an annual fee.)

If they can qualify for a simple cash-back credit card with a low APR that would be ideal, but without any credit history that might be difficult. No foreign transaction fees would be another perk to keep an eye on when exploring options, but it's not entirely necessary.

If they have an existing relationship with a bank or credit union, that's the safest bet for approval without much of a credit history. Credit cards with better rewards and sign-up bonuses may be enticing, but applications may result in rejection due to a lack of credit history.

Don't get your dependent 18-year-old a credit card -- do this instead

If your 18-year-old is still dependent on you, and you'll be footing the bill in one way or another, it might be better to add him or her as an authorized user on one of your existing credit card accounts. Most credit card issuers allow you to put limits in place for authorized users, so you'll have complete control over how much your child can spend.

Adding your child as an authorized user on your account is extremely easy and doesn't require an application for approval. You just provide the person's name (some credit card issuers require a social security number) and they send you a card.

Additionally, you'll also see what exactly your child is buying with the credit card since you'll receive the bill. If anything questionable comes up, you can take the opportunity to reinforce what expenses the credit card is for and which expenses are their own responsibility.

You can make a child an authorized user as young as 13 years old, and it's not a bad idea to start them early. Simply opening an authorized user card on a no annual fee card in your child's name is enough to get their credit report started. They don't even have to ever see the card or know it exists for that matter.

If there's ever a situation where your child might need a credit card, you can give them their authorized user card, and tell them what's appropriate and what's not. Let them know that you'll get the bill, and you'll see exactly where they're spending money so that they don't have any "emergencies" at the mall.

Teaching a child how to use credit cards responsibly when they're still young is a great gift. Not only will they be less likely to abuse credit cards when they're independent, they'll be more likely to qualify for some of the best credit cards due to their relatively lengthy credit history. They'll also have an easier time qualifying for apartments, mortgages, and cellphone plans, and they might pay less for insurance as well.

However you decide to get your 18-year-old (or younger) child a credit card -- as a co-signer or adding them as an authorized user -- it's a great decision. You can set up safeguards to protect them from abusing credit limits and getting themselves into serious financial trouble, and you help set them up for a bright financial future by instilling good spending habits and establishing a good credit history. Just make sure they understand how to use a credit card responsibly.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.