Should your teen have a credit card?

There are a lot of things parents teach their teens, like how to drive, how to do laundry or how to do basic home repairs. Another lesson to add to the list? Teaching teens about money, including how to use credit.

A good time to start teaching your kids about money is when they actually have some — usually through a first job. Now that money actually means something to them, it can be a good time to help them start building up their own finances and credit history.

Teens can't apply for their own credit card accounts until they're 18. And until they're 21 they'll need to prove they have the ability to repay a credit card on their own. So one consideration is to add your child as an authorized user on your card. In addition, you should use the opportunity to teach your kids how credit cards work, and that it's not as easy as just "swipe and go."

Helping your kids understand personal finances is essential. What they see and hear from you when they're young sets the tone for their relationship with money when they're adults. They'll need to understand how to budget, save and spend responsibly when they've got their own families to support, and they'll likely need good credit to finance a car or a home. You can set them up for success by teaching them about establishing credit.

Of course, not all kids are ready for their own credit card. One child may be cautious about spending, but another is all about instant gratification. One of them is probably ready for a credit card, but the other isn't. Every kid is different.

What are the benefits of credit cards for teens?

You might be hesitant to let your teen loose with a credit card, and with good reason if you're picturing the damage they could do. But there are benefits to teaching them how to use credit while they're still young, so they're prepared to manage their finances in the future.

• Credit history. Most minors don't have a credit report or a credit score yet. Helping them build one now by adding them to your credit account as an authorized user could make future financial decisions easier for them. Responsible credit card usage today can make it easier for them to get their own credit card or obtain financing to buy a car or a house in the future.
• Fraud protection. When you're trying to teach your teen about money, a credit card can be a safe, lower-risk option from a fraud perspective. Generally, credit cards offer better consumer protections than cash or most debit cards, making them safer to use online or in person.
• Emergency support. If your teen is a new driver, it might bring you peace of mind to know that they're hitting the open road with a credit card tucked away for emergencies. They won't be stranded without gas or food money. Of course, you'll want to set clear rules on what counts as an emergency. This also could be a good opportunity to teach your child about the importance of building an emergency savings fund.

How to add your teen as an authorized user

Just handing your credit card to your teen won't have any impact on their credit score. Any debts they run up would be solely in your name. Instead, making your teen an authorized user on your account will actually help them build their own credit. Keep in mind that though your authorized user could benefit from your good payment and credit history, it will also have a negative impact on them if you've missed payments or made any payments late. Also, payment for any charges remains the legal responsibility of the primary card holder — in this case, you.

If you'd like to share your positive credit history with your teen, check with your credit card company to verify that they'll also report them as an authorized user to the credit bureaus. Some banks or financial institutions may have limitations for authorized users as well as other restrictions.

Is your teen ready for a credit card?

Before you add your teenager as an authorized user on your credit card, make sure they can handle the responsibility. You don't have to give your teen the credit card with their name on it right away. Keep it until you can have a serious conversation with them first and ask yourself three questions to help determine if they can handle the responsibility.

• 1. Can they follow the rules? Make sure they'll obey any rules or limitations you put in place. For example, what's their deadline for reimbursing you for their purchases? Where can they use the credit card, and how much can they spend? If your teen breaks the rules, it might be a sign they're not ready yet.
• 2. Do they understand how credit works? Part of giving your teen a credit card is to teach them how to use credit. But they need a basic understanding of balances, credit limits, how credit cards work and annual percentage rate basics. Gauge their past use and understanding of cash and debit cards. If they can see how their credit card usage can affect their credit — and yours — and why it matters, they'll likely be able to use a credit card responsibly.
• 3. Are you — and your credit — ready? Just like your credit can affect your teen as an authorized user, your teen can affect your credit score. If they go on a spending spree, you might not be able to pay off your balance each month. You could even find yourself missing payments if they become unaffordable, which would be a big hit to your credit score. If you're currently relying on your credit history to get a loan for a big purchase, like a home or a car, you might want to postpone making your child an authorized user until after you make your purchase.

Consider a secured credit card for young adults.

Another option for teens once they're old enough to meet the minimum credit card requirements is to apply for a secured credit card, which requires a security deposit. The deposit amount acts as the credit limit. If the payments end up in default, the credit card company can close the credit card account and use the deposit to cover the outstanding balance. The required deposit varies depending on the bank. You'll want to check with your credit card company to see if there are any limitations. A secured credit card can be a relatively low-risk way for a young adult to start building credit history, which could one day help them qualify for an unsecured credit card.

Of course, not every teen is ready for a credit card — even one they share with you. While building credit is an important part of becoming an adult, you'll want to make sure your teen is mature enough to learn how to navigate credit card fees, balances, late payments and other financial pitfalls. You're the best judge of your teen's readiness, and you're the best person to guide your child toward financial independence.

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.