Baby Steps to Building a Credit History: A Case for Helping Your Child Obtain a Credit Card

Much has changed since the passage of credit card legislature in 2010. Credit card companies are now prohibited from advertising on college campuses with enticing “freebies” like t-shirts, water bottles, or even food. Furthermore, the Credit CARD Act of 2009 bumped up the minimum age for obtaining a credit card from 18 to 21. Those under 21 can still potentially get a credit card with proof of income or co-signer (read: you).

While credit card rules may have changed, our pervasive credit card culture has not. Obtaining a credit card without basic common sense spending habits and a base level financial knowledge can lead to a cycle of consumer debt. It has been estimated that the average level of credit card debt for graduating college seniors is over two thousand dollars.

On the other hand, having no credit history can be as damaging as having a spotty record. Obtaining a car loan, signing an apartment lease, or even passing a credit history check for a job may all become difficult tasks if one does not have a solid credit history built up. Therefore, obtaining a credit card for your child at the age of 18 (or even younger) is a positive step in establishing good credit habits and history.

Walk before you run

Credit cards can be wildly complex even for working adults, let alone teenagers. Before allowing your child to piggyback on your credit card, start off small with an independent bank account with a debit card. Allow your child to manage their own account without incurring any withdrawal fees. A debit card is a great way to teach your child that a piece of plastic is actually tied to real cold hard cash.

Teach financial literacy

While helping your child build a credit history is a great reason for co-signing a credit card application, it is not the most important one. A credit history can turn from good to bad fast if not accompanied by a solid understanding of how credit cards work. Teaching your child about minimum payments, annual fees, and APRs is critical for building safe credit card habits later in life. There are some fantastic online resources to supplement your talks.

Start small

While it may be tempting to simply call up your current credit card company and add your child as an authorized user, there can be consequences to “piggybacking”. Your credit card history can be affected due to the actions of your teenager. The opposite is true as well, if your credit history takes a downturn, that bad credit will follow your child as well.

Alternative options include co-signing a card for small purchases such as a credit card for gas. Another option is to make out one of your utilities (gas, electric, cable) to your child’s card. This move would slowly but surely build a solid credit history for your child while making them simultaneously responsible for paying bills in full and on time.

The decision to help obtain a credit card for your child is a personal one. However, at a certain age your child will invariably have to deal with credit cards and the consequences of a sour or non-existent credit history. Consider taking small steps early on to ensure a bright financial future for your child.

Angie Picardo is a staff writer for NerdWallet, a website dedicated to helping consumers alleviate debt with the best balance transfer cards.