For many young adults seeking independence, getting a credit card is a rite of passage—but it can go awry without appropriate guardrails in place. Caregivers can play a pivotal role in helping their kids with this milestone by introducing them to strategies for building credit, using credit cards wisely and managing money responsibly.
Here's how to support your child in developing foundational personal finance skills that will put them on the path to becoming a credit-savvy adult.
1. Discuss How Credit Cards Work
Although your kid has grown up watching you swipe or tap your credit card to pay for things, they may have no idea how it works. Sit down with a credit card statement and define all the terms: annual percentage rate (APR), statement balance, credit limit, available credit, minimum payment due, etc.
Explain the fees related to a credit card account, and emphasize how interest balloons the balance if you don't pay it off in full every month.
2. Introduce Credit Scores
Once they understand the mechanics of credit cards, explain credit scores and how they influence your ability to take out a loan, get a mortgage, rent an apartment or even get utilities in your name. A good credit rating is essential throughout your life, so impress upon your child the importance of establishing creditworthiness from the start.
Show them how they can get a free copy of each of their three credit reports from AnnualCreditReport.com, and explain the habits involved in attaining (and maintaining!) a good credit score, including paying their bills on time, every time.
If they don't yet have much in their online credit file, gradual exposure to credit use allows them to build their account. It's also smart to check what's currently in their credit file to ensure they haven't been a victim of identity theft.
3. Assess Their Age and Stage
The legal age to apply for a personal credit card is 18, and even then, most young adults need a cosigner unless they have regular income that will cover payments.1 Before you step in as a cosigner, assess whether you believe they have the maturity to manage money effectively, budget expenses and understand the implications of credit card use. (We'll share some steps to navigate these obligations below.)
However, you can help your child build credit even earlier by making them an authorized user of your card. Of course, this means you're on the hook for the payments, so only take this step when you're confident they appreciate the accountability associated with using a credit card.
4. Start With a Debit or Prepaid Card
High school can be a great time to get your child used to handling a credit card. Through a “training wheels" approach, they'll gradually build autonomy to practice good habits without the ability to make a major financial mistake.
For example, set up a debit card or a prepaid debit card with a specific amount and have them practice spending it over time—maybe you'd like them to budget their back-to-school clothing allowance or monthly meals and entertainment. If they make a mistake or go a little wild, you're limiting the size of the financial fallout.
Once your child demonstrates prudent spending and credit habits, it might signal the right time to "graduate" them to a credit card.
5. Choose a Secured Card as Their First Plastic
A secured credit card is a fantastic tool to start building credit. With this vehicle, you make a deposit that dictates their credit level. So a $500 deposit corresponds to a $500 credit limit. As they spend and then pay back the money, they'll improve their ability to spend within these defined limits. After some time, a bank will likely graduate your child to an unsecured credit card.
6. Keep the Credit Limit Low
By keeping a reasonably low limit on a credit card, you can avoid creating too much spending freedom for your child, safeguarding them from making a major financial mistake that may hurt their credit score.
Be sure to also explain to your child how the credit utilization rate—the percentage of available credit that's being tapped—can affect their credit score. A low utilization rate (30% or less) is a major factor in having a healthy credit score.2
Encourage them to check their balance frequently so they're aware of how much they've put on the card each month, as we all know how quickly that balance can creep up.
7. Limit the Total Number of Credit Cards
Having too many credit cards may hurt your child's credit score beyond just the ding they might get from irresponsible usage. Applying for too many credit cards in a short time may indicate to lenders that they are a high-risk borrower, which often triggers higher interest rates. Start your child with one credit card to keep things simple, and let them take on more commitment as they prove they've earned it.
8. Discuss Credit Card Perks and Rewards
A major benefit of using credit cards is enjoying the perks that come with certain cards, such as cash back rewards and fraud protection. Talk to your child about how to find a card that fits their lifestyle, but stress that they should never charge more on the card than they can comfortably pay off in full. The resulting interest can minimize the other benefits the card offers.
Parental Guidance Paves the Way to a Healthy Financial Future
Caregivers wear numerous hats as they equip their kids with a full complement of essential life skills. Incorporating discussions about credit card usage and creditworthiness into a broader framework of financial education helps ensure children are well prepared to handle upcoming challenges and opportunities as they transition to adulthood.
Cathie Ericson is an Oregon-based freelance writer who covers personal finance, real estate and education, among other topics. Her work has appeared in a wide range of publications and websites, including U.S. News & World Report, MSN, Business Insider, Yahoo Finance, MarketWatch, Fast Company, Realtor.com and more.
READ MORE: How to help your college kid keep a handle on their spending.
Sources/references
1. White, A. How Old Do You Have To Be To Get a Credit Card? CNBC. July 10, 2023.
2. What Is a Credit Utilization Ratio? Equifax. Accessed March 20, 2024.
Need to make a payment?
Use the Log In button to find your account login
portal.