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Establishing credit for the first time can be exciting because it’s the moment when a person begins to have control over their financial future. Usually, the first method of establishing credit is the acquisition of a credit card. A person turns 18 years old, the minimum age requirement for a credit card, and applies for a card, and what they do with it begins to determine the course of their credit history.
When a person uses their credit card correctly, a positive credit history is established that can lead to many opportunities. Those opportunities include the ability to obtain higher credit limits, additional credit cards, personal loans, auto loans, and even home loans. But is it possible to establish credit before turning 18 years old to get an even earlier start?
Can You Get a Credit Card Before Turning 18?
Many people under 18 years old get a prepaid card. This isn’t a credit card, but it looks and behaves like one. The difference is that money is deposited onto the card and only what is available can be used. It works like a temporary bank account, so there is no impact on the cardholder’s credit. It also is similar to just using cash since you need to deposit funds from your bank account or with cash out of your pocket.
The way a person under the credit card age limit of 18 can establish credit is to become an authorized user on an adult’s credit card account. Parents will typically do this to help their teens establish credit earlier, which makes it easier to get credit cards and other credit instruments when the child finally turns 18. It can be difficult for a young adult to get an adequate amount of credit at a low interest rate if they have no prior credit history.
When a parent adds their child as an authorized user on a credit card, the parent covers the payments unless the child has a job and is required by the parent to pay their share. This tends to be the case so the child can learn financial responsibility before their finances are completely in their own hands.
All a parent has to do to add their child to their credit card as an authorized user is call the credit card company to make the request. It is a quick and easy process. The credit card company is given the child’s Social Security numberand other identifying details. And if the parent requests it, a card with the child’s name can be sent over as well.
Benefits of Getting a Credit Card Early
Establishing credit early can have a wide range of benefits. When credit is established early, young people have more opportunities, such as the ability to apply for a private student loan. Upon reaching the age requirement for a credit card of 18 years old, a person can legally apply for their own credit. If there is already a satisfactory credit history, secured cards and high-interest cards can be avoided.
There’s also the fact that having a credit card early can teach a person how to manage their finances. One of the things that many young adults have learned the hard way is how high credit card balances can keep them from acquiring new credit. By learning sooner rather than later, a young person’s future can be positively impacted.
Author: Jeff Gitlen
Jeff Gitlen writes about a wide range of finance topics including everything from student loans to credit cards to small business financing. Jeff's work has been featured on a number of sites including Bloomberg, CNBC, Forbes, Market Watch, and more.