Building Credit: Your Child’s First Credit Card

Building Credit: Your Child’s First Credit Card

There are several milestones that parents both look forward to and dread for their children. Graduating from high school means a child is ready to become an adult and go to college, but also usually means they’ll be leaving the house for the first time. Getting a driver’s license means a new sense of freedom, and someone else to run errands, but comes with a host of risks and expenses. One milestone that many parents don’t consider is their child’s first credit card.

A child’s first credit card can be an incredibly importance experience in their life. Just like going to college, it shows that they are getting ready to become an adult and operate in the world on their own. Moreover, just like their first car, a child’s first credit card comes with its fair share of risks and expenses. However, a first credit card can be an important experience, and it can set the stage for providing your child with the financial skills they’ll need for the rest of their lives.

Value of a First Credit Card

There are several advantages to getting your child their first credit card. It’s important to note that we’re looking at a child’s first credit card from the perspective of a credit card in their name, not just as an authorized user on your credit account. Understanding the benefits of a first credit card will help you guide your child onto the path of financial wellness before they leave the house and must learn everything for themselves.

Responsible Use of Financial Products

The first benefit of getting your child their first credit card is that they can learn to use financial products responsibly. Debt is a huge problem this day in age, and almost everyone will have to take on debt at some point in their lives for one reason or another. Offering your child their first credit card and then having them make payments on it from their allowance or any money they get from a job will help them understand how important concepts like interest rates and balances work now.

Additionally, giving a credit card to your child while they’re still living at home can help them become used to the idea of a credit card. This is vitally important, as the novelty and ease offered by credit will have worn off by the time your child is in a position to do some serious spending. Individuals who get a credit card for the first time when they are in college or have graduated are more likely to be enthralled by the option of buying something now and paying for it later, and therefore are more likely to use these products in an irresponsible way.

Establish Credit History

Another advantage to getting your child their first credit card is that it will help establish a credit history for them. Length of credit history is an important factor for credit reporting agencies who determine credit scores. Giving a child a credit card now will allow them to build a positive credit history.

Building a credit history early on will also help protect your child’s future if they have problems paying or make a mistake. The solid credit history will minimize the effect of any negative incidents that occur, protecting them from the worst ramifications of their mistakes.

Moreover, establishing a credit history now will help raise your child’s credit score in the future. A better credit score will secure them more favorable terms on things like loans and lines of credit. As a result, your child could save tens or even hundreds of thousands of dollars on interest rates and other charges over the course of their life because you laid a firm foundation for their credit history today.

Minimize Risk

Finally, getting your child a credit card now helps to minimize the risk they face. Most companies don’t offer younger consumers or first-time credit card users a large limit on their credit cards. As a result, any problems that occur will be far less costly to fix, either for you or for your child.

Additionally, the lower credit limit and lower stakes that exist for children help to protect them against the threats that every credit user faces, like identity theft. Children are more likely to learn responsible use of credit and loan products, keep track of their personal information, and use products to help protect themselves from frauds and scams if they understand the value of these products early on.

How to Pick Your Child’s First Credit Card

There are so many different credit and loan offers on the market today that it can be a challenge to find the best product for you, much less the best product for your child. However, there are several key qualities you should look for to ensure that your child is getting the best financial product.

Limits

The most important consideration for your child’s first credit card is the credit limit. You want to ensure that they have some ability to spend on the card, but that the limit is low enough that they or you can cover the entire balance with one payment if needed.

Interest Rates

It’s best to look for credit cards with introductory rate offers. That way your child will have a chance to adjust to the reality of paying a bill each month before they have to learn how interest rates affect their payments. Additionally, interest rates can make it harder for someone to zero out a balance, and you want to encourage your child to carryover as little balance as possible on their credit accounts.

As you can see, there are several advantages to getting your child their first credit card. Moreover, once you consider the credit limit and interest rate of the different cards available, you’ll be able to rapidly select the best credit card for your child. Getting your child their first credit card is a great way to help them learn about finance while establishing a credit history that will benefit them for the rest of their lives.

Sean Michaels

Sean brings a decade worth of experience in credit repair to our company. Sean started his career working in an accounting department for a major credit card company. This was a natural fit, given his bachelor’s and master’s degrees in accounting.