Should Teens and College Students Have Credit Cards?

Twenty-something woman with headphones on, holding credit card while shopping online

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For teens and young adults who are just starting to establish their credit, credit cards have some significant pros and cons to consider.

Credit card debt is a major problem for many people, and every year millions of people of all ages find themselves struggling to manage debt. Interest rates rise, payments get missed, and credit scores plunge. Credit card debt can be destructive, but credit can also play an important role in a healthy financial life.

Buying a home, renting an apartment, getting insurance, applying for a job, are among major life steps that require having a good credit history, which includes proving you can manage credit.

Key Takeaways

  • Credit cards can help teens and college students establish credit history and good habits with using credit cards.
  • Credit card users who do not understand how interest charges work may get into more debt than they might expect if they carry debt from month to month.
  • Teens and young adults who do not make payments on time can see their credit scores decline.
  • With poor credit scores, teens and young adults may find it more difficult to qualify for important financial products like mortgages or auto loans.

The Downsides of Credit

Once you turn 18 and can qualify independently for a credit card or loan, you become a prime target for lenders. Credit card companies know that young adults are eager to begin their adult lives, and credit cards can give them a sense of financial independence.

Unfortunately, many teens and college students don't fully understand interest rates, terms, and card features. In some cases, the card you choose may set you up for financial struggles. Interest rates can compound and quickly increase your debt, perhaps resulting in higher and unmanageable monthly payments.

Younger people who are in the market for a credit card should get educated about the potential effects of high-interest rates, making minimum payments, and making late payments. If teens or young adults have difficulty keeping up with credit card payments, their debt can be destructive to their credit history.

How Credit Cards May Benefit Students

On the other hand, having a credit card can provide some critical lessons on managing credit that can be valuable throughout life. Despite all of the potential negative consequences of credit card debt, many students can benefit from having a credit card.

A credit card can help establish a credit history. For one, an important factor of your FICO score is the length of credit history. So, the sooner you establish a line of credit, the longer your credit history will be when it's time to apply for, say, a mortgage or car loan.

With a credit card, you can also start to prove you can make timely payments and manage the proportion of your debt to credit by paying down your debt each month, both of which will also boost your credit score.

Credit cards can also serve teens or students in an emergency. Most students don’t have a significant emergency fund, but credit cards give them ability to pay for necessities during an emergency situation.

For example, if your car breaks down, or you need to fly home for an emergency, a credit card can provide a good safety net to cover those expenses. Of course, it's important to have a plan to repay the debt you rack up during an emergency as quickly as possible.

Role of Parents and Guardians

Parents and guardians can help educate their child to encourage good spending habits and healthy debt management. They can teach their teen or young adult about both the benefits of having a credit card and the devastating consequences of misusing one.

If you are a parent of guardian of a young adult getting their first credit card, consider discussing the reasons why it’s important to have a credit card and credit history. Also consider helping them find a credit card that fits their needs, such as one with a lower APR, lower credit limit, and lower late fees.

You can guide them through making the monthly payment, so they know what to expect.

Finally, if you are a co-signer on a card or have added your teen or young adult as an authorized user, review any ground rules. Explain what the credit card should be used for and who is responsible for the payments.