Are You Too Young to Build Credit?

Should high school seniors get a credit card to build credit? For these young adults and their parents, the question isn’t academic. They face this question as soon as they turn 18.

The benefits of building good credit are numerous; lower interest rates when you borrow and lower insurance premiums are just two of them. If that’s the case, then wouldn’t establishing credit as soon as possible be a smart move? After all, the age of your credit accounts is one of the five main factors that go into credit scores, and the older your accounts, the better.

Not so fast, says Janet Bodnar, Editor of Kiplinger’s Personal Finance magazine and author of the “Money-Smart Kids” column on Kiplinger.com. “I don’t think that high school seniors need to start thinking about building credit as soon as they turn 18—at least by getting a credit card. I don’t think young people that age have the maturity or real-world experience to manage credit, and it’s too much responsibility to put on their shoulders—or their parents’.”

Bodnar thinks kids should establish credit more gradually. She says:

When students are in middle school and early high school, they can learn to manage a cash allowance because cash is real money—they can hold it in their hands, and when it’s gone, it’s gone (plus, with all the recent data breaches, cash has developed a new cachet). When they get their first part-time job in high school, their parents can help them open their own checking account, with an ATM card or a debit card, so they can make deposits and withdrawals of their own money.

By the time they graduate from high school and head off to college, they should definitely have their own debit card, and they should know how to balance their account—by going online, using a paper check register or using a mobile device, whichever is most practical. They should use their debit card/checking account to manage their money in college, gain maturity and confidence, and learn how to pay their bills on time (and not phone home for money). Then, when they reach age 21, they should consider applying for credit on their own.

Bodnar says that’s how her three children established credit, and notes they have managed the process very well. “I’m very proud of them,” she says.

Of course, no matter what you think about your 18-year-old kid getting a card, you may not be able to stop them. As long as they can demonstrate that they have the income to repay the debt, they can get a card without a co-signer. (They are, after all, legally adults at that age.)

True, they may not be flooded with offers the way they were before the Credit CARD Act, which established guidelines designed to try to prevent those under 21 from getting credit cards they can’t possibly repay. But many will still get offers for student cards, or be encouraged to open a retail card when shopping at their favorite stores.

And some parents may want to be proactive in helping their children establish credit.

Helping Your Kids Build Credit

Those who want to keep closer tabs on their child’s spending can add them as an authorized user on one of your credit cards. In most cases, that account will then appear on their credit history as well. Just beware: whatever they charge on the card you will be responsible for paying off as the primary cardholder. You can’t just say to the card company, “But I didn’t give them permission to buy that!” To avoid this scenario, some parents may opt to add their child as an authorized user on a card, but not give them the card.

Another option is a secured card. Because your credit line is equal to the amount of the security deposit, the credit line will usually be smaller, which also means less risk.

When it comes to building credit, it’s very important that your kid learns how to use credit responsibly; it’s just as important for them to learn how to pull (and read) their credit reports regularly (at the very least, their free annual credit reports). Monitoring credit scores can also help guide their efforts when building credit. One way to get credit scores for free is through Credit.com — which also gives an analysis of what’s affecting your credit scores and a personalized plan to build it.

Finally, some young adults may be ready to establish credit at 18. My daughter, who is a few years away from that milestone, recently asked me what it takes to earn a perfect credit score. She tells me she intends to have one. Given the way she obsesses about her grades, I have no doubt she’ll also obsess about getting a perfect credit score.

Would I give her my blessing if she wants to establish credit as a senior in high school? At this point, yes. But I reserve the right to look over her shoulder as she does.