At a time where lucrative credit card bonuses allow you to fly around the world in top notch premium cabins or stay in amazing overwater bungalow huts, you may be forgetting an important benefit of credit cards – the ability for your kids to start building credit early in their life. Most people think that you need to start your credit journey after you turn 18 with the primary option being a secured credit card, but there is an enormous benefit to starting much earlier. Giving your kid a credit card not only benefits them and their financial security; there are benefits for the parent as well. Below are some benefits.
The sooner you start building credit history, the sooner the child will receive better interest rates and receive valuable credit card rewards. Otherwise, their primary options may be going through the tedious process of secured credit cards with limited benefits. Most people may think that you need to be 18 to start building your credit, but they are mistaken. With many different credit issuers, you can start accumulating credit at 12 years old. Starting early will not only put positive information in your credit report, it will allow you to increase the length of your credit history, both of which will increase your credit score.
There are many ways to give your child a head start. Add his/her name to a parent’s credit card as an authorized user. Most credit card companies will allow you to do this as long as your kid is older than 12. However, it is very important that you add their social security number to the card, otherwise it is pointless from a credit perspective. As long as the main account holder keeps the card in good standings and pays it off every time, the credit will apply to the teenager. If you are a parent and are now thinking that you would be crazy if you gave a teenager a credit card, that’s not the case. You don’t need to spend money on the card to help the credit score, you just need to leave the account open and in good standing. In other words, you don’t need to actually give your kid the card, just leave it in your sock drawer, and it will help their credit. It is that simple. If you want, you could even cut up the card. You do not need to tell them that you opened an account for them in order to help them with their credit. Just having an account with them not only builds their credit history, which will allow them to take advantage of more lucrative credit cards when they are older, it also builds their relationship with the bank which is helpful to open new accounts later on.
Another option is cosigning for a credit card. For the most part, you cannot cosign for a credit card if you are under 18. In this scenario it would also help their credit score by being the primary account holder on the credit card while still being able to sign up for the card with no credit history. This will later build a solid credit history. Cosigning is the better option for someone over 18 who is starting their credit journey. If you are older than 18 and have no prior credit history, the only other option to you is a secured credit card, which in my opinion, is a worse option.
Overall, there is a lot to gain in terms of a smart financial future and other benefits, and there is not really anything to lose. Just make sure you are responsible with your spending and pay your bill. Otherwise your kid will suffer financially. Most importantly, teach your kid how to be smart financially and how to pay their bill in full every month and avoid carrying a balance and the nasty interest that goes along with it.
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