First Credit Card
Parents want what’s best for their kids; teens long for more independence. Financial education for youth is a great way for both you and your teen to get what you want. It allows parents an opportunity to set their teens up for success in their financial future, and it gives teens the freedom to make their own financial decisions. When your child starts building a good credit score from a young age, they’ll have a better chance of getting approved for loans and buying the car or home of their dreams.
One way parents can teach their children about finances is by helping them understand how credit cards work, when and why to use one, and which credit card to start with. If you’re a parent who needs help with teaching your child to apply for a credit card, we at Indiana Members Credit Union have you covered. In this guide, we answer some of the most frequently asked questions that you and your teen may have on the subject. Let’s get started!
What Credit Score Do You Start With?
Your teen’s starting credit score will vary depending on their spending habits once they have their first form of credit, whether it’s a loan, a credit card, or a line of credit. Before that, their credit score doesn’t exist. To build one up, they’ll need to meet these FICO® requirements:
- They have one or more credit accounts opened for at least six months.
- At least one of their credit accounts has been reported to the credit bureau in the past six months.
- They don’t have a deceased person listed on the credit report. This may happen if they have a shared account with someone who has passed away.
There are several factors that affect your credit score, all with varying weight. These factors for FICO are:
- Payment History: Is your child making payments on time, or do they regularly miss payments? Paying on time will boost their score while missing payments will hurt it. The older the transaction, the less of an impact it will have. That means that if they missed a payment in the past, they can make up for it by keeping up on future payments. Payment history makes up 35% of their score.
- Utilization: How much of the credit limit your teen uses will affect their credit score. Typically, they should stay under 10% but above 0% of their limit at a time for each account. Using a credit card shows lenders that your child can responsibly pay off debt, but if they use too much credit, it suggests to lenders that your teen is in financial trouble. Utilization makes up 30% of their score.
- Established History: How long your minor has a credit account will impact their credit score. Having a credit account open for a long time can boost their number because it shows lenders that they have experience using and paying back credit. Established history makes up 15% of their score.
- Inquiries: This refers to the number of times your teen applies for credit. Typically, they should avoid applying for credit unless they absolutely need it and/or are confident that their application will be accepted. Inquiries make up 10% of their score.
- Mix of Credit: It’s best to use several forms of credit, such as loans, credit card accounts, and lines of credit. Spreading out their credit will ensure that your child stays under that recommended 10% of their limit that we mentioned previously. Having a mix of credit makes up 10% of their score.
When starting from scratch, there are a few other methods for your teen to consider to build their credit and improve their approval rates in the future.
How to Start Building Credit for the First Time
A few of the most common methods that your child can use to start building credit include:
- Applying for a secured loan. Also referred to as a credit-builder loan, this allows your child to borrow a small amount of money that they pay back regularly to bump up their credit. It differs from traditional loans in that instead of receiving the full amount of the loan upfront, the lender will place the entire loan amount in a locked savings account. Your teen will not receive the loan until they pay back the entire amount of the loan over time. It teaches them how to save money to pay their bills on time. This is one way that your teen can prove to banks that they are financially responsible before they take out a traditional loan.
- Setting up a joint credit card account. The idea behind a joint credit card account is similar to adding your child as an authorized user on your account. The only difference is that a joint credit card account requires that both you and your child make payments. If you want to teach your child responsibility while they build their credit, this can be a good option.
- Getting a car loan or student loans. If your teen wants a new car or plans to go to college, having them take out a loan can be one way they can boost their credit score—as long as they make their payments on time. Because your child may not have an extensive credit history, you will likely have to be a co-signer on their car loan so that lenders have confidence in your paying it back. Young people are typically approved for student loans even with a lower credit score, particularly when it comes to federal student loans. When it’s time to buy a car, IMCU's low rates offer your teen an excellent financial situation as they build their credit with an auto loan.
- Opening a starter credit card account. A starter credit card account gives teens and young adults a chance to have a first time credit card with no credit history to boost their score. These accounts are typically for people between the ages of 18 and 21 years old. They offer a lower credit limit to teach your child the importance of paying back credit on time while preventing their getting in over their heads. At Indiana Members Credit Union (IMCU), we have two different Jumpstart Credit Cards for you and your child to choose from:
- Premier Rewards+ that allows young people to earn points they can use towards purchases
- Premier Advantage that offers teens and young adults a lower rate rather than rewards
The fastest way to build credit from no credit is to take out a loan or open a credit card account and make payments on time.
Can You Get a Credit Card Under 18 Years Old?
Typically, your child has to be at least 18 years old to open a credit card account of their own. With that said, you can get a credit card for your 17-year-old or younger child if you add them as an authorized user on your account. The minimum age limit for authorized users will vary among financial institutions.
The number of credit cards for 18-year-olds with no credit history is limited. Those that are available may require that applicants meet more expectations for approval. For example, your child may have to prove that they have a steady income that they can use to pay their bills. Once your child turns 21 years old, they will have many more options with higher credit limits.
Even though your child can’t get a credit card in their own name when they’re younger than 18 years old, it’s never too early for your child to start building their credit. It’s a great way for them to ease into adulthood and learn how to be financially responsible early. What’s more, it opens the door for your child to have better options when searching for a new car, apartment, or home. Teaching your child about credit early will set them up for success.
Can an 18-Year-Old Get a Credit Card Without a Job?
In rare cases, an 18-year-old can get a credit card without a job as long as they have a co-signer on their account who has a steady income. However, many financial institutions don’t offer this option. Instead, teens and young adults must prove that they have enough of an income to pay their credit card bill each month. Most commonly, that means your child should have a job, whether part-time or full-time. However, if you pay your teen an allowance, or your teen has an inheritance or other investments, then that can be considered income, and they won’t need a job.
Your child may also use a college scholarship or grant as income in some cases. For it to count, your child must have leftover funds readily available after they’ve paid for their tuition and college expenses. The excess amount should cover the amount of their credit card bill each month to count as income. If your child doesn’t or can’t work, they still have these options to cover the income requirements for credit card approval.
How to Get a Credit Card for the First Time
To get a credit card for the first time, follow these basic steps:
- Research your options. If your child is under 21 years old, they will have fewer options in terms of which credit cards they can get approved for. With that said, they should still look into what’s available to them. They’ll find that different cards offer different rewards, rates, etc. It’s important that they don’t choose a credit card with an annual fee if it doesn’t come with rewards—it won’t give them the same bang for their buck. When they explore their options, they’re sure to find the best first time credit card for them. For example, IMCU's Jumpstart credit cards offer rewards for on-time payments for 12 months, an additional bonus for being responsible with their first credit card.
- Apply for a credit card. Your teen can apply easily online. Some of the information they’ll need to include is their name, social security number, date of birth, contact information, and income level. Make sure your child only applies to cards that they have a good chance of getting approved for. A credit card rejection can hurt their credit. Your child can access the IMCU Jumpstart Credit Card application here.
- Use your credit card. Once your child is approved for a credit card, they need to start using it and paying back their credit to build up their credit score. Remind them to stay under their credit limit when they use it, and encourage them to check the balance on their account regularly so they don’t accidentally overspend.
Your teen can get started on their financial journey easily with the right credit card. Consider IMCU and the benefits of a Jumpstart card as their first credit card.
What Is One Type of Credit Card That Is Good to Start With? The IMCU Jumpstart Credit Card!
With an IMCU Jumpstart Credit Card, your child will have access to more than just a credit card; they’ll have access to guidance and services through every step of their financial journey, even after they make the transition to a different credit card. Your teen can manage payments and accounts through our Digital Banking tool and set up alerts about how much they’ve spent and when to make a payment.
Your teen will also have access to the SmartStart Tool in the IMCU app to learn how to spend, save, and budget their money wisely. We care about your child’s financial success and want to support them no matter what kind of account or credit they need. That’s why our Jumpstart Credit Cards are great credit cards for young adults with no credit. They come with:
- No annual fees
- On-time payment rewards
- The chance to earn double rewards points with twelve on-time payments