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For many parents, choosing the right time to give their child a credit card is a difficult decision. After all, the stakes are high. Getting your child off to a positive start using credit can help them gain financial independence early in their adult lives. On the other hand, if your child establishes a poor credit history early on, it can take years to overcome, increasing the likelihood of their need for financial support into adulthood.
The best time to establish credit for any young consumer varies per family depending on factors such as, the child’s maturity level, financial knowledge, and the family’s finances.
Let’s discuss the positives of children establishing credit. Designating your child as a joint account holder or authorized user on your credit card can help them build a positive credit history (assuming you pay the credit card bills on time - otherwise you could be hurting their credit). Having a longer history of good credit will help your child achieve a good credit score faster, which can significantly help them once they’re ready to establish credit on their own when they go to open their own credit card, get a car loan, or even rent an apartment.
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There are tremendous benefits associated with teaching your child how to use credit responsibly before they open their own credit card. Many young adults who open their first independent credit card establish a negative credit history that can take years to put behind them. Note that most negative items stay on a credit report for at least seven years. By giving your child a credit card under your supervision, you can teach them how to responsibly use credit. A great way to get started is by giving your child a credit/debit card with a specific credit limit (say $500), and letting them know that it can only be used for specific purchases. Another alternative is to give your child a card that they can use for whatever they want with the understanding that they’re required to pay off the card themselves using their allowance or after-school job money.
Of course, the biggest risk of giving your child a credit card is the potential for overuse or misuse by your child. If a parent doesn't closely monitor their child's credit card spending, they could be establishing poor habits. As mentioned above, the card should be paid on time or you might actually be hurting your child's credit history.
Understand that if your child charges more than you want them to, as a parent you’ll be responsible for paying those charges. Unless you’re certain you can trust your child’s spending habits, you need to set spending limits in place.