Can a Teen Get a Credit Card and Build Credit?

Establishing responsible financial habits early can provide a foundation for future financial well-being. Understanding how credit operates can help individuals navigate various financial opportunities and challenges throughout their lives.

Age Restrictions for Credit Cards

Federal law places specific requirements on individuals under 21 seeking a credit card. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 mandates that card issuers ensure applicants under 21 can demonstrate an independent ability to make required minimum payments or have a co-signer who is at least 21 years old.

To meet the independent income requirement, an applicant under 21 must show verifiable income. This can include earnings from a job, work-study programs, or consistent allowances from family members. However, income from sources like student loans or a parent’s income generally does not qualify as independent income. If independent income is not sufficient, a co-signer can assume legal responsibility for the debt incurred on the account. Many major credit card issuers have moved away from offering co-signer options for credit cards.

Methods for Teens to Acquire Credit Cards

Even with age restrictions, several avenues exist for teenagers to begin building credit. Each method offers a distinct approach to gaining access to a credit card and establishing a financial history.

Becoming an authorized user on another person’s credit card is a common starting point. The authorized user receives a card and can make purchases, but they are not legally responsible for the debt. The primary cardholder remains accountable for all charges, and the account activity can be reported to credit bureaus for the authorized user, potentially helping them build a credit history. The primary cardholder’s responsible use of the card directly influences the authorized user’s credit profile.

Secured credit cards offer another pathway for individuals with no credit history. These cards require a cash deposit, which serves as the credit limit and acts as collateral for the issuer. This deposit reduces the risk for the card issuer, making secured cards more accessible. Responsible use can help transition to an unsecured card.

Student credit cards are specifically designed for college students. These cards usually require proof of enrollment and may have more lenient income requirements than standard unsecured cards. Another less common option is a joint account, where two individuals apply together and share full legal responsibility for all charges and debt. Unlike an authorized user arrangement, both joint account holders are equally liable for the account, regardless of who makes the purchases.

Establishing a Positive Credit History

Once a credit card is acquired, consistent and responsible management is paramount for establishing a positive credit history. Specific behaviors directly influence the development of a favorable credit profile.

Making payments on time is the most significant factor in building a good credit score. Payment history accounts for a substantial portion of credit score calculations. Even a single late payment can negatively impact a credit score. Therefore, ensuring bills are paid by their due dates is essential.

Keeping credit utilization low is another important practice. Credit utilization refers to the amount of credit used compared to the total available credit. Experts generally recommend keeping this ratio below 30% to demonstrate responsible credit management. For example, if a card has a $1,000 limit, maintaining a balance under $300 is advisable.

Additionally, avoiding unnecessary new credit applications can help maintain a healthy credit profile. Each new application typically results in a “hard inquiry” on a credit report, which can temporarily lower a credit score. It is also advisable to regularly check credit reports for accuracy. Free credit reports are available weekly from each of the three major credit bureaus (Equifax, Experian, and TransUnion) through AnnualCreditReport.com. Reviewing these reports helps identify and dispute any errors or signs of identity theft.

The Impact of Credit Scores

A credit score provides a numerical summary of an individual’s creditworthiness, based on their financial history. This three-digit number is a vital indicator for lenders and has broad implications for an individual’s financial future.

Common scoring models, such as FICO and VantageScore, typically range from 300 to 850. These models consider several factors when calculating a score. The main components include payment history, the amounts owed, the length of credit history, new credit applications, and the mix of credit types. Payment history and amounts owed generally carry the most weight in these calculations.

A strong credit score can unlock numerous financial advantages throughout adulthood. It can lead to better interest rates on loans, such as mortgages and car loans, potentially saving thousands of dollars over the life of the loan. A good credit score also influences the ability to rent an apartment, obtain certain insurance policies, secure cell phone contracts without large security deposits, and in some cases, can even be considered by employers during hiring processes.