Credit Cards for Teens: Are They a Good Idea?

A credit card is a passport to many parts of American economic life. They’re practically a necessity for hitting crucial milestones, such as renting your own place for the first time or taking out a mortgage. But does that mean opting for a credit card for teens to help kickstart the process is a good idea?

Earlier isn’t always better. To help you decide whether it’s time to get a credit card of your own, we’ll run through the pros and cons of credit cards for young people and some alternatives. 

How a credit card for teens works

First things first, how old do you need to be to get a credit card?

The legal minimum age for a credit card is 18 years old in the U.S. But realistically, an 18-year-old may find it challenging to open a credit card account for the first time. The FTC’s Credit Card Act of 2009 says that those between 18 and 20 need to either: 

1. Provide a cosigner (someone who agrees to pay the balance on their behalf if they miss their payments).

2. Give proof of income (to prove they’re creditworthy).

Those 21 and over may find it easier to get a credit card since these requirements no longer apply, but they may still face challenges if they have a poor (or non-existent) credit history.

However, there are solutions. Student credit cards are designed especially for college students and have more lenient criteria. In addition, secured credit cards require you to put down a security deposit equal to the credit limit, which proves you have the funds needed to pay your bills.

Still, just because you can open a credit card as an older teenager, it doesn’t mean that you should.

Pros of credit cards for teens

Taking out a credit card for teens involves plenty of drawbacks, and we’ll get to them shortly. But first, let’s touch on some of the potential benefits.

Build credit history

The better your credit history and score, the more access you’ll have to other financial products in the future — including the best credit card offers as well as favorable auto loan and mortgage terms.

It’s no wonder that many believe the best solution is obtaining your first credit card as quickly as possible, even if it means asking your parents to co-sign.

However, as you’ll soon see, this isn’t necessarily your only option.

Earn credit card perks

Many credit card companies give cardholders access to various perks, such as cash back or credit card points they can use toward air miles or gift cards. These rewards can seem irresistible. If a financial institution is offering you something for nothing, why would you say no?

Used wisely, credit card perks can be a fantastic tool, but they’re only beneficial if the cardholder has good financial discipline.

Learn financial responsibility 

You may feel excited to get on the “credit ladder” so you can become more independent and responsible, and you can start to educate yourself about personal finances.

Learning by doing can be powerful, but a credit card shouldn’t be your first exposure to the lessons of credit. It’s like taking an important exam without doing any practice questions first.

Cons of credit cards for teens

It might be tempting to send off that credit card application based on the advantages outlined above, but it comes with a set of risks. We’ve outlined the biggest ones below.

Developing a poor credit history

It’s true that a credit card can help you build a great credit history, which leads to many other positive outcomes. But obtaining a good credit score is far from a guarantee. For this to happen, you have to manage your credit account responsibly, which can be more difficult when you’re young and have a limited income.

Your credit card issuer will report things like late or missed monthly payments and credit utilization to the major credit bureaus (TransUnion, Equifax and Experian), and they will appear on your credit report. Negative marks in your credit history will result in a lower credit score.

In other words, misusing a credit card could ruin your credit, making it harder for you to access credit in the future.

Starting life in debt

The potential problems go beyond just credit history. Poor credit card use as a young adult can also affect your broader financial health and plunge you into debt.

If you only make the minimum payments each month or have an outstanding balance on your credit call bill, things can easily spiral out of control due to compounding interest (when interest charges are subject to more interest).

Plus, credit cards often involve further fees that you may be unaware of, such as cash advance fees, balance transfer fees or foreign transaction fees. These can also contribute to an increasing balance and more debt.

Alternatives to credit cards

In most cases, the cons of having a credit card outweigh the pros. If you decide to get a credit card for teens anyway, take a cautious approach and ensure you understand key elements of how credit cards work (such as APR and the billing cycle). 

You could also consider asking your parents to monitor your spending to give you some accountability. This doesn’t mean they have to look at what you’re spending your money on — just the bill at the end of the month and whether you’ve fallen into debt.

Otherwise, here are some solid alternatives that offer the same benefits as a credit card for teens but with less risk.

Build your credit history by becoming an authorized user

The biggest dilemma for most would-be cardholders is building a credit history. Fortunately, there’s a simple solution: Become an authorized user on someone else’s card (e.g., your parents) before applying for your own credit cards. 

This means that as long as your parent continues to make on-time payments, you will build a good credit score. However, remember that the cardholder will have to cover the costs of anything you spend since the card is in their own name. So have an agreement in place with regard to spending limits and covering your own purchases.

There’s no universal minimum age requirement to become an authorized user. Instead, it’s at the discretion of the credit card company. For instance, American Express asks for a minimum age of 13 years, Discover has a higher limit of 15 years, and Capital One has no requirement at all.

In fact, 8% of parents with children under 18 have given at least one of their children a credit card. 

Earn cash back in other ways

Cashback from credit cards is a convenient and effortless way to earn a little extra from your purchases — but it’s not the only way.

Many other cashback websites and mobile apps allow users to earn extra cash from their purchases, such as TopCashBack. Just keep in mind that some of these sites and apps have a minimum age requirement. 

Learn about finances first

Before you get a credit card, you need a good understanding of personal finance management. 

There’s nothing quite like learning by doing — but ultimately, managing credit comes down to good budgeting skills, and you don’t need a credit card to practice that. 

Instead, you can use a debit card connected to a checking account and practice spending within a budget that way. This will help you practice for future credit card bills without having to face harsh consequences like late fees or interest charges.

Prepaid cards can achieve a similar goal and are a good way to implement a risk-free credit limit.

Walk before you run

Managing a credit card can be tough for people of all ages, including teenagers. It’s therefore something to approach with caution and avoid if possible unless you’re sure you’re ready and your parents agree (if you’re under 18). 

Still, there are many alternative ways a teen’s credit and financial chops can improve, such as becoming an authorized user on a parent’s card and learning how to budget.

To help you learn more about personal finance management before getting a credit card of your own, sign up for the Tally† newsletter. We’ll send you regular tips about avoiding debt and being smart with your money, helping you to gain the knowledge you need to dive into the world of credit.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.