(StatePoint) As young adults establish their financial independence, they may be overwhelmed with enticing credit card offers. Free airfare, cashback and special introductory rates may be tempting, but choosing the right card is more important than snagging some fun freebies.
If your young adult is looking to get started with credit, consider these options to help guide them toward their financial goals.
• Add them as an authorized user on your card: When just starting out, young adults may have trouble getting approved for a credit card independently. One way to help with this is to add your young adult as an authorized user on one of your credit card accounts. Many lenders report account information for authorized users to credit reporting agencies, which helps develop a credit history. For most cards, both positive and negative account activity is reported. Think of it as your young adult’s credit report inheriting your credit habits. Your child will get his or her own card, but you’ll remain the primary account holder. This means you’re on the hook for any purchases they make.
• Apply for a secured or student credit card: One option for students with limited income and a short credit history is a secured credit card. This type of card will help build credit history like a standard credit card would. The main difference is that secured cards require a deposit up-front, which acts as the card’s credit limit. Despite forking over a deposit, your student must still pay back the outstanding balance in full and the funds from the deposit can’t be used to pay off the balance. After graduating to a regular card or closing the secured card account, the issuing bank will refund the deposit amount.
Those with an established credit history may want to consider a student credit card, which is no different from other credit cards, but typically has lower credit limits. This type of card generally requires proof of income for approval, so they make the most sense for students who have jobs.
• Consider a rewards card carefully: Once young adults have established healthy credit card habits and a more robust history, they can move on to choosing the best card for their situation. Those alluring rewards credit cards are popular because of their perks and bonuses like cashback, bank points and travel miles on their purchases. But as exciting as they may be, if your young adult isn’t careful, spending can easily get out of hand. These cards, some of which have annual fees, should be reserved for those who have a set budget and strict spending plan.
For more tips on helping your young adult get started with credit, download TransUnion’s parent toolkit at transunion.com/pathtocredit.
Whether an authorized user on your account or already on their own credit path, it’s important for your young adult to understand how credit works and how to interact with it responsibly.
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