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How your teenager can start building credit

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    Knowing how to manage personal finances is one of many life skills that teens need to learn before entering adulthood. Understanding how to use a credit card responsibly can set a teen up for success by building a positive credit history. This could come in handy in the future when applying for a student loan, an auto loan or even renting an apartment. Establishing a good credit history is the first step in building a credit score that will be favorable to lenders and landlords.

    While you need to be at least 18 to get a credit card of your own, there are different ways for your child to access credit before then. This article will cover:

    • When to introduce your teen to a credit card.
    • Credit card options for minors.
    • 4 ways to teach kids about using credit responsibly

    When should you get your child a credit card?

    Children under the age of 18 are not allowed to enter into credit card agreements, but many card issuers will allow minors to become authorized card users. Some issuers have minimum age requirements, that necessitate authorized users must be at least 13 or 16 years old.

    Once your child becomes a legal adult, usually at the age of 18, they may be able to become primary cardmembers, albeit with restrictions. For those under the age of 21, by law under The Credit CARD Act of 2009, credit card issuers must require applicants to meet at least one of two conditions:

    • They have documentation of independent income.
    • They have a co-signer.

    Recommended credit-building steps for minors

    • 14 and under:Try using a prepaid card to practice purchasing items with a spend limit.
    • 14-18: Add your child to your account as an authorized user (if your card issuer allows this). Go through monthly statements together and discuss the plan for paying it back. Note that some issuers have different age limits.
    • 18 and up: Once your child has reliable income of their own, help them get a starter or student card that best suits their needs.

    Credit options for children under 18 years old

    Before giving your child access to credit there are some pros and cons to weigh carefully.

    Make them an authorized user

    Many card issuers allow minors to be added as authorized users. You can add your child when you apply for a card or add them later. Th eonly information typically needed is their name, address and Social Security number. Your teen will have their own card, but you'll share an account number.

    Pro: You can monitor your kid's spending habits online or through your card statements.

    Con: You are ultimately responsible for their spending and the monthly bill. If your child handles the card irresponsibly, you are still on the hook for covering their purchases.

    What to ask before adding a minor as an authorized user

    • How much will adding your child as an authorized user cost? Some cards charge a fee. 
    • How will the authorized user information be reported to credit bureaus? Some issuers report on authorized users and some don't — be sure to find out.
    • How will you track spending? Since most authorized users share card numbers with the primary user, it can be hard to separate primary and authorized user purchases.

    Apply for a low-limit credit card

    If you want your teen to have access to a line of credit separate from the main card you use, you can apply for a low-limit card and add them as an authorized user. With a low limit, your child can practice using the card without building up too much debt.

    Pro: Your child will only be able to spend up to the card's limit and, if you don't use the card yourself, it will be very easy to track their purchases.

    Con: You'll have to apply for a new card. If your child maxes out the credit limit, it may hurt your credit score.

    Practice with a prepaid card

    If you want to get your teen started using a card, but feel they're not ready for a real credit card yet, you can purchase a prepaid card. There is no application process to get one and it won't impact your child's credit score. This is because their activity is not reported to the credit bureaus. Known as general purpose reloadable cards (GPRs), prepaid cards work similarly to gift cards and likewise have no bearing on your credit score, nor is debt amassed.

    What is a starter card?

    Starter or student cards usually don't have the same credit requirements as other types of cards. If your child is under 21 but can prove they have a source of income, they might be able to get approved. Your teen can get either a secured or unsecured card.

    Pro: These cards typically have a lower credit limit and sometimes have higher credit approval rates for students with little to no credit history and limited incomes.

    Con: You have less control over their spending than with a low-limit card or as an authorized user.

    Four ways to teach kids about responsible credit use

    Here are four ways you can help teach your child about credit:

    • Talking about money shouldn't be taboo: Speak to your child early about money and credit, and how to use it responsibly. Model how to make wise purchases within your means and pay them off fully.
    • Start small: Give your tween or teen limited use of the card at first. You can start with small or occasional purchases and slowly build up from there.
    • Have them use their own money: Having your child use their own money, perhaps an allowance, can quickly teach them about the value of a dollar. They may think twice about a purchase if they know it's on them to pay it back. This is great practice for understanding needs vs. wants.
    • Establish a budget: Help them establish a budget and spending boundaries so they can track their money appropriately.

    In conclusion

    Preparing your teenager to manage their finances early in life is one way to set them up for success. Allowing them to practice using credit while still under the safety net of a parent is a great way to ease them into an independent financial future.

    If you're looking to improve your own credit, join Chase's free credit monitoring tool called Chase Credit Journey, and manage your credit with confidence.

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