3 Great Options for Your Child’s First Credit Card

Your child is now an adult, or at least close to the age of majority, and you’re now ready to give them that most grown-up of spending tools: a credit card.

Apart from the practical value of providing your kid with an alternative to cash, if only for emergencies, a credit card in their name will allow them to begin building a credit record that could eventually facilitate getting student and car loans, a mortgage, and more.

That said, it’s wise to furnish a first credit card in a way that’s most likely to enhance, rather than damage, credit scores and to minimize the possibility of unduly running up the household’s credit card debt.

To facilitate that, you’ll probably want to choose an option that gives you a measure of control over the card your kid gets, and how they subsequently use it. Fortunately, such oversight is easier than it used to be. If you are a Gen Xer parent, you likely remember the days when hitting college led to receiving a slew of unsolicited credit card offers you could sign up for without mom or dad knowing you’d done so. After that solicitation created a mountain of credit-card debt, the CARD Act of 2009 put tougher restrictions on issuing credit cards to people under 21. Now your young adult’s first credit card will come with training wheels, and you’ll likely be on the hook in some way for what he or she does with it.

Here are the main options for that first card.

1. Authorized User Status

Making your child an authorized user on your credit card is one way to guide him or her to use credit responsibly. Your son or daughter gets a credit card with his or her own name on it, and you pay off the charges each month. However, you monitor use and maintain control over the account.

With this situation, you’ll probably want to establish some firm ground rules. You might, for example, insist that your child to only use the card for specific types of purchases--gas, for example, or other necessities. In addition, you could require that your be in some way reimbursed for his or her purchases, especially of non-necessities. Your leverage over enforcing these terms is the power you’ll have to remove your child as an authorized user if he or she fails to agree to your terms.

2. Co-Sign for a Credit Card

Under the CARD Act, you can also co-sign for your adult child’s credit card. Your child then makes purchases, and is responsible for paying the card’s bill every month.

This arrangement can help build independence and a sense of responsibility, but it comes with some major downsides. If your child fails to pay his or her credit card bill, late payments will appear on your credit report. And if those recur, and the child proves to be unable to meet even the minimum monthly payments, you’ll be legally responsible, as co-signer, for paying off the debts your kid has run up.

3. A Secured Credit Card

A secured credit card allows you, or your child, to deposit a certain sum of money into an account--say $1,000--and then charge up only to that amount on the card. With this arrangement, your child can’t live beyond their means by charging above a set amount to the card, and they can’t damage their credit score by failing to make payments. (Yet having the secured card will nonetheless help your kid to build their credit score, as activity on the account will be tracked by agencies.).

With a secured credit card, though, it’s wise to guide your child through the application process. Do an internet search so they can compare fees and rates. Talk to your child so you know that he or she understands all of the card’s fees.