The ability to gain approval for home loans and auto loans stems from borrowers possessing a good credit score, income, and an established repayment history. Upwards of 86 percent of all automobile purchases require financing, and the average age of homeownership increased from 31 years old in 1981 to 45 years old in 2021. These powerful statistics prove supporting children in establishing financial independence is crucial for their success. How can a parent assist their young adult in safely building credit? Securing a student credit card, sometimes called a kid’s credit card, remains a vital tool in successfully building credit. This successfully leads young adults towards the financial freedom needed to buy a reliable car or a first home when the time comes.
Kids Credit Card Benefits
Education does not begin and end in the classroom. Parents are the primary influencers in how children of all ages learn to make responsible financial decisions. From using a gift card to purchase an online game to managing a savings account, parents instill decision-making values.
The sooner young adults possess a kids credit card with parental oversight, the better their credit scores will be when it comes time to purchase an automobile or apply for a mortgage. If you’re among the mothers and fathers who are hesitant to co-sign for a kids credit card, understanding the long-term benefits and financial security could make a difference. These typically involve the following.
- Financial Training Wheels: Responsible parents generally talk about frugal purchases and money usage with their young children. Despite these words of wisdom, youngsters are still likely to make mistakes unless they gain first-hand experience. A kids credit card with a reasonable limit provides an opportunity to learn good spending habits and budgeting practices. Requiring your children to pay off monthly balances mirrors the real-life expenses they face as independent adults, such as utility bills, taxes, and monthly loan payments.
- Parents Can Be Hands-On: The idea that a student credit card, or kids credit card, is essentially a license to spend is something of a myth. Involved parents can insist on hard limits and even track spending online. The younger generation may be savvy about online gaming and YouTube videos, but a determined parent can log in and track their child’s spending practices.
- Emergency Uses: One of the reasons parents like their children to possess a credit card stems from emergencies. If they’re off at a concert, road-tripping with friends, or away at college, they have a viable resource should a financial need arise. Imagine having a radiator hose burst and no way to pay for repairs. Financial emergency anecdotes are seemingly endless, and that piece of plastic is often the solution.
- Understanding Interest Rates: Today's youth often graduate high school or enroll in college without truly understanding how interest rates impact their finances and quality of life. Getting a credit card at an early age makes the cost of interest on outstanding balances abundantly clear. After your child watches their money go toward interest after not paying off a monthly balance, they’ll learn an invaluable lesson.
It's not unusual for people enrolling in a two- or four-year college to apply for a student credit card. This opportunity often serves as their first foray into using a line of credit and experience with interest rates. These student credit cards offer people 18 years and older attractive rewards and incentives to get them to apply.
Parents have good reason to be concerned about inexperienced children winding up with high-interest payments and unreasonable fees. It’s crucial to have your child begin a positive track record of responsible borrowing and repayment while working closely with an adult.
Age Requirements for a Kids Credit Card
It’s important for parents to encourage fiscal responsibility and encourage their child to secure a kids credit card at the legal age of 18. Although 18 years old stands as the earliest someone can apply for a credit card, having a parent serve as a guarantor generally helps the applicant gain approval. Possessing a credit card at 18 years old is crucial because a significant number of 21-year-olds experience rejections due to lack of credit. Establishing a reliable repayment history early ranks among the best ways to advance to independent borrowing at a young age.
3 Student Credit Card Tips for Success
Possessing a kids credit card at 18 remains a vital first step toward enjoying financial flexibility and borrowing power. By that same token, a young adult who spends beyond their means can damage their credit and ability to secure low-interest automobile loans and a mortgage when the time comes. Parents may be well served to consider the following strategies to keep their child’s spending habits in line.
Discuss When to Use a Student Credit card
The average American carries more than $6,000 in credit card debt and Georgians are ranked in the top 10 highest states. This is not the path that parents want for their children. It’s imperative to show members of Gen X how paying off monthly credit card balances saves money and improves borrowing capacity. Talk to them about situational credit use with a plan to pay off the balance at the end of the month.
Talk About How Using a Student Credit card Impacts Your Credit Score
When the three major credit bureaus calculate someone’s FICO score, age of accounts influences that three-digit number by 15 percent. Repayment history takes up 35 percent of the overall score, and the credit mix stands at 10 percent. Opening a student credit card and ensuring your child makes on-time payments positively affects 60 percent of their FICO score. It also avoids them rushing around trying to improve that score when they secure a good-paying job and want to put down roots by buying a home.
Have an Open Door Policy for Discussing Money
Compassionate parents experience an emotional tug of war involving loving kindness and frustration. If you’re laughing right now, you’re not alone! We all want the absolute best opportunities and happiness for our children. Seeing them make some of the same mistakes we did causes us to get emotional.
Sometimes taking a breath before discussing a financial misstep or a youthful idea about money use can prove fruitful. Parents work hard at remaining patient and staying open to these important issues. Express to your child that you’ll keep an open mind and an open door about financial matters.
How to Apply for a Kids Credit Card
There are wide-reaching student credit card opportunities designed to attract young people. Responsible credit card offerings typically don’t advertise incentives that aren’t supported by low interest rates, no annual fees, and other substantive benefits. If you or your child are interested in applying for a kids credit card, apply online or contact Peach State today.
For more kids credit card mistakes to avoid, review our "The Best Credit Cards Always Offer These Hidden Benefits" complete guide!
Click here for complete details about Peach State’s Visa Credit Cards, including interest rates and disclosures.