Your Child Wants a Credit Card
Is it bad if a high school graduate wants a credit card?
The experts say it depends on the child and how he or she considers the card. If children think of credit card as of the way to spend more, you should be careful. But if they are informed and know how the stuff works, plus they are responsible, then you can think of letting them to get a credit card.
It may sound paradoxical, but some credit issuers offer cards which are comparable to ones that people with excellent credit are offered. The credit limit is much lower, but the terms may be the same, and cards may even include rewards.
The reason is very simple: college students have a higher earnings potential than those who are not headed to college. Banks are aware of this situation and want to build a relationship with students as early as possible.
Banks lure the children into credit card world offering different opportunities. One of them is a no annual fee credit card which allows the students to start establishing credit for free.
Students may build their credit faster if they use the cards and make payments on time each month. Moreover, they can still build credit even if they put away their card and don’t use it any more. The issuer will report the credit bureaus that the account is in good standing.
Other Options to Consider
Being a prime target, college students will be getting offers from credit card companies. But law says that anyone under 21 who applies for a credit card must have a co-signer or be able to show the ability to pay the bills. A part-time job is quite enough to qualify.
Even if parents don’t want their children to get approved for the card, the issuers may approve them. So it is better make the first step and to add the child as an authorized user on the card.
That is much better then become a co-signer because as co-signers parents do not have a real control over how the child uses the card. And legally, parents are liable for any debt their children incur.
Authorized user is another thing. This allows the child to have a credit card with their name printed on it, but the primary cardholder maintains all the control. As a primary cardholder you can track the child’s use of the card and remove them from the card if they abuse it.
Yes, as the primary cardholder, you are still responsible for paying the bills, but there are no downsides of a co-signer. And your child is building a credit history being an authorized user because the account is showing up in their credit reposts.
Talk to Children
Getting the first credit card is a big step, so don’t neglect to have a little talk with your child.
Credit scores are based on personal credit history and play a big role in our lives. Credit score affects your ability to rent an apartment, get a car loan or even get a good job. Today almost everything is watched in the light of the person’s credit score.
Have a conversation with your child about the consequences of not managing the credit properly. It is important they understand that bills are to be paid in full and on time every month.
Explain that one late payment can drop the credit score up to 80 points. Tell them how it impacts their credit and how bad credit impacts the whole life.