If you live in the United States, it is a good idea to get a credit card at an early age to start building credit history. Having a long credit history can help you a lot in the future, e.g. when you want to rent an apartment or get a home mortgage loan. Of course, this is only true if you have a history of handling credit in a responsible manner. A credit history that is riddled with late payments and defaults will do you harm.
Ideally, your credit history should include several types of credit, and one of those types should be revolving credit – such as a credit card. Prospective lenders are eager to see if you can handle revolving credit responsibly. This is why it is a good idea to apply for revolving credit at an early age – provided that you trust yourself to use it responsibly.
Authorized credit card user
For many children, the first step towards building credit history is to become the authorized user of a credit card issued to one of their parents. As an authorized user, you are given a separate credit card tied to the same line of credit as the main card. The parent can elect to limit how much of the credit that will be available to the authorized user. The authorized user is not legally responsible for the debt – the main holder of the card is. Because of this, many card issuers will allow a minor to be an authorized user.
Even though the authorized user isn’t responsible for the debt, being an authorized user can still help build credit history. With certain credit bureaus, this is a double edge sword though, because if the credit isn’t handled responsibly, this information will be included in the authorized person’s credit history. Many credit bureaus only include positive factors, but some will include both positive and negative factors, so be aware before you agree to be any authorized user of anyones credit card.
Example: You are the authorized user of your mother’s credit card. If she misses payments or even defaults, it will be bad for your credit history (with certain credit bureaus). In the United States, even minor things, such as your mother having a high credit utilization, can have a bad impact on your credit score. When a prospective lender looks at your credit score only, they can’t see that it is low because of someone else’s actions.
This is why it’s a good idea to take yourself off other people’s credit cards once you’re old enough to build your own independent credit history. When your mother added you as an authorized user, she could elect to put a limit on how much you could spend. But you, the authorized user, have absolutely no control over the primary card holder’s spending, utilization ratio and how well the debt is managed.
Secured credit card
If you can’t get approval for a standard credit card, a secured credit card can be a good alternative. You will still build credit history, and using a secured credit card in a responsible manner will increase your chances of eventually being approved for an unsecured credit card – if that is what you want.
To get a secured credit card, you must make a deposit to the card issuer. This deposit will be held as collateral.
A secured credit card is not the same thing as a debit card or a pre-paid card. You should pay your monthly bill just as you would with a standard credit card. Money will only be deducted from your deposit if you fail to make the payment. Of course, failing to make payment is a bad thing for anyone who want to build good credit history.
Getting a credit card in the U.S. when you’re under 21 years of age
Is it true that you can no longer get a credit card in the United States until your 21 years old? No, this isn’t true.
In the United States, the US Credit CARD Act of 2009 has made it a bit more complicated to get a credit card when you are younger than 21 years. Since the law was enacted, there needs to be proof of financial independence before a credit card application is approved to someone under the age of 21. If you aren’t financially independent, you need an eligible co-signer for the credit card.
This doesn’t mean that it is impossible or even very difficult to get a credit card at a younger age. The aim of the law is not to hinder young people from getting a credit card. Instead, the main focus of the law is to put a halt to some quite predatory marketing ploys carried out by credit card companies looking for young clients. Credit card promoters would for instance show up at college campuses and hand out free pizza to anyone who registered for a credit card, and the routines for vetting a persons financial situation and ability to repay debt had a tendency to be very lax.
Student credit card
Many young people are students, and can benefit from having a student credit card instead of a regular credit card. Of course, you need to take your individual situation into account when you pick – for some students there are non-student credit cards that are better than student credit cards.
Student credit cards tend to come with perks targeted towards the typical student, e.g. discounts or cash back on student literature. Some student credit cards will even give you a reward for good grades.
Of course, a student credit card isn’t just for young people. Older students can benefit from them as well, since they too need to purchase student literature and so on.