The Best Time for Young People to Get a Credit Card

It may not seem like it, but it is possible to go through life without credit card. That being said, when used responsibly, credit cards offer many advantages over other payment methods. They are convenient, protect you against fraud and theft, and sometimes offer cash back and other awards. They can also help you build the credit history which you will need if you want to borrow money to buy a house or a car. Here are some things for parents and their offspring to consider when deciding when to get that first card.

Key points to remember

  • For a young child, a debit card linked to a checking account may be a better idea than a credit card.
  • Later, consider a low-limit credit card in a parent’s name, but with the child as the authorized user.
  • At college age, the child may qualify for a student credit card, but be sure to shop around.
  • Recent graduates who have not yet had a credit card may need to start with a secured credit card.

High school

Why you shouldn’t wait

Parents who introduce their children to the concept of credit management as teenagers can better prepare them to use it responsibly in the future. However, a credit card probably shouldn’t be a high school student’s introduction to personal financial management.

As an alternative, some experts recommend opening a youth checking account with an attachment debit card when a child is in college. Parents can teach the child to monitor the account balance and use their debit card wisely.

After that, they can switch to a low limit credit card when the child is a bit older. If the child is under 18, the card will usually need to be in the name of a parent, with the child listed as Authorized user.

why you should wait

High school students may succumb to the same temptation as many adults to spend more on their credit cards than they can afford to pay back. Additionally, if the child is an authorized user on a parent’s card, their overspending could reflect poorly on the parent and harm their credit score.

Middle School

Why you shouldn’t wait

At 18, students can qualify for a credit card in their name. If they don’t have a credit history when they start college, getting a card now will help them start building one. This will be important in the end when it comes time to rent an apartment or apply for a mortgage.

Many credit card issuers have cards designed specifically for students, but like any other type of credit card, it’s a good idea to shop around and compare rates and terms. Investopedia publishes regularly updated lists of Best Student Credit Cards.

why you should wait

If someone never had a debit or credit card when they go to college, it may be safer to start with a debit card linked to their own current account or that of a relative. Many student credit cards have high interest rates, so it’s easy to get into debt, especially if they miss a payment or two.

Plus, parents can’t easily oversee their kids’ credit card spending habits while they’re in college, so this might be a bad place for them to experiment with credit for the first time.

Wouldn’t it be worse to wait until after graduation? Maybe, but paying cash or debit card will keep them out of trouble. Starting adult life with a load of high-interest debt and/or a bad credit history puts recent graduates at a disadvantage and may be worse than having no credit history.

Important

Paying bills on time and not having too many outstanding debts are the two most important factors in establishing a solid credit score.

Recent college graduate

Why you shouldn’t wait

Getting a credit card is an easy way to establish a credit history and start building a solid credit score. Also, sometimes a credit card is required for things like renting a car or booking a hotel room.

Graduates who don’t have enough credit history to get a conventional credit card can start with a secure credit card. This is a special type of card that requires the holder to deposit money with the lender. the deposit then serves as a credit limit on the card. After using a secured card for a period of time and making all payments on time, the cardholder may qualify for a regular unsecured credit card.

Regardless of the type of credit card they have, it is important that new graduates follow the rules for earning and maintaining a high credit score. Credit scores are based on several factors, the two most important of which are payment history (does this person pay their bills on time?) and credit utilization rate (how much credit do they use at any given time compared to the amount of credit they have?). A person whose credit cards are all used up will have a high credit utilization rate and their credit score will suffer accordingly.

Even if the new grad isn’t considering applying for a mortgage, car loan, or other form of debt where a good credit score is essential, that might change one day. In addition, credit scores are used for other purposes, such as setting insurance rates, and potential landlords and employers can view them as well. So, establishing a good credit history will pay off in many ways.

why you should wait

Anyone who knows they will have trouble managing their debts might want to give up on getting a credit card until their life is better sorted. Credit card companies don’t go anywhere and the person can always change their mind later.

The essential

Credit cards are a part of financial life, and for many people the advantages of using them outweigh the disadvantages. When a person should get their first credit card will largely depend on how responsible they (or their parents) feel they are handling it. While establishing a credit history is important, a bad credit history, riddled with early mistakes, can be worse than no credit history at all. So there is no urgency. If a young person is not yet ready for a credit card, you can wait until they are.

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