Is there an ideal age for someone to get his or her first credit card? Learning how to properly manage and pay off debt can be important lessons for the long haul. But a credit card in the hands of someone who has yet to learn personal financial responsibility can result in long-lasting consequences.
According to CNBC, the optimal age for many people to get their first credit card is 18 or slightly older, since those less than 18 years old need a co-signer, such as a parent. Many others may get their first credit cards later in life. But is there a better time to sign up for a credit card, and could that be earlier than most people imagine?
Tips for Reducing the Possibility for Strain with a First Credit Card
One of the most important variables isn’t necessarily the age of the credit card holder, but the limits to which that holder will be exposed. For example, people with a very low limit on their credit card can only do minimal damage when they go off the rails—which is a good way to introduce them to the lessons of keeping purchases within their means.
- Monthly reviews. If you’re a parent allowing your child to have a credit card for the first time, you might make it a requirement to sit down together on the first of each month and go through all of the spending. With a limit in place, you don’t have to worry about going over budget—instead, you can take the time to review the purchases with your son or daughter and discuss which ones represent good spending habits.
- Learning the benefits of a credit score. Maybe it’s not necessary to know everything about credit scores just yet. But as young people build their credit histories, using a credit card can be an ideal learning opportunity.. Not only are credit scores positively affected by the average age of credit accounts, but building up the right habits with credit cards can help create a long-lasting healthy credit score as well.
- Special student card benefits. Some credit cards offer special benefits to college students, which can be an ideal way for students to stretch their dollars. One word of warning for these cards: to offset the risk of giving credit to college students, the interest rates on these credit cards is often considerably higher.
The Benefits of an Early Credit Card
Rather than waiting until someone is well beyond ready for a credit card, employing the tips above can help a young person learn how to manage credit while slowly building up his or her credit history. Consider some of the benefits of holding a credit card from a young age:
- Building up a credit score. A healthy credit score can help people save money on the major purchases of their lives, making them eligible for better interest rates on house or car loans, for example. It can help them pass background checks when applying for employment or for an apartment or rental home. Credit score isn’t something to take lightly. Instead, it’s something that someone should learn to manage from a young age.
- Building a backlog of rewards points. You never know when rewards, such as travel rewards points, can come in handy. For instance, credit cards that offer cash-back can earn you a little extra money on routine purchases and also serve as little “savings accounts”—not to replace the real thing, of course. The benefit of these savings accounts is that they don’t require any conscious effort to maintain. All a credit card user has to do is establish the rewards when opening the account and then allow them to collect with the normal pace of spending.
- Learning the foundations of personal finance. Some personal finance gurus eschew the benefits of credit cards, believing that debt in all forms is too dangerous for most people. But when people learn about debt from a young age and understand what happens every time they charge something to a credit card, it can serve as the foundation for the principles of good personal finance for years.
A credit card can be a powerful tool for learning about finance. But used absentmindedly, it can also be an early ticket into too much credit card debt. The best time to get your first credit card is when you understand the risks and benefits of using these financial tools—and how to best incorporate those benefits into your life.
About the Author: Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.