Getting a credit card for your child can be a great opportunity for your child to learn about building good credit, using credit responsibly and proper credit card processing usage. There will come a time in your child’s life in which he or she will have to use credit cards and other forms of credit, and they might also be offered credit cards once they turn 18. If your child understands the concept of using credit responsibly and is educated on how credit cards and merchant accounts work, your child will be much less likely to run into credit problems in the future.
Parents should be aware of some of the problems young people face with credit
It is important that parents are aware of the problems that some young people face with maintaining good credit. For some young people, credit is misused by being spent on unnecessary items. If they do not have the ability to repay the balance back by the end of the billing cycle, they may accumulate a balance. With the high APR of many credit cards, especially those that are given to young people, large extra costs can accumulate.
When is your child ready for a credit card?
The most important thing to consider before getting your child a credit card is whether or not he or she is already financially responsible. If your child has been demonstrating financial responsibility with their bank account and current spending on debit card processing machines, they will be able to manage a credit card much better. On the other hand, if your child is having difficulty with their bank account with overdrawing and other balancing problems, it might be a good idea to hold off on getting a credit card for your child for a while.
Co-signature is now required if your child is under 21
Recent legislation made getting a credit card for a person under 21 much more difficult. The Credit CARD Act of 2009 requires anyone under 21 seeking a credit card to have a parent, guardian, or spouse co-sign for the card. The other way that a person under 21 can receive a credit card is by proving sufficient income. For several credit card companies, the requirements are sometimes $5,000 per year to qualify for $500 of credit.
Parents should discuss credit cards with children before co-signing
It almost goes without saying that if a parent decides to co-sign for card for their child, then they are held liable for the loan if the child becomes delinquent. Because of this co-signature requirement, it is important that parents discuss how to maintain a credit card and explain the terms of the credit card agreement.
Use payment alerts to keep updated on your child’s payments
If parents decide to go ahead and get their child a credit card, they should also be vigilant in monitoring monthly payments for at least the first few months. Many credit card companies offer payment alerts and online monitoring for parents who co-sign on credit cards. With these monitoring tools available, and with proper discussion of credit maintenance, it is safe for parents to offer their children a credit card and teach them good credit management and credit card processor usage skills.
