Credit Cards Could Benefit Older Children

Many younger consumers are finding their access to credit limited these days

, as those who compare credit card offers and fill out applications for new credit cards can find themselves being denied by stringent lenders.

The recent credit crunch has adversely affected this demographic, as many young adults 18 and over are finding it difficult to obtain a credit card.

New laws that were recently enacted requires co-signers for those under 21. The legislation requires young people to get their parents' permission for a credit card, or provide proof that they are able to sustain themselves financially.

Some may find that the easiest option these days is continuing the account link between parents and their children, CBS Moneywatch reports. The two parties may even benefit by opening up a joint account, whereby both parties are equally responsible for transactions incurred on the account.

However, this option can carry some negative aspects, as well. It could affect both parties' finances if the credit linked to the account becomes bad, regardless of who does the spending, according to the news source.

Though, if the account is used responsibly, the child could benefit from their parents' good credit, while continuing to build his or her own.

Another common option is for a parent to choose to make a child an authorized account user. In this situation, parents can direct the credit card company to issue a credit card to the minor, who then acts as an extension of the existing account. There are benefits to this option, as parents are capable of setting up separate monthly bills with a distinct credit limit.

Despite the benefits of an authorized account, it still offers some of the same drawbacks, the news source says. In the event that the child's portion of the account becomes past due for an extended period, it could come back to hurt both parties' credit history.

See also: Authorized users vs. joint account holders

Because of this, many parents may choose to compare credit cards to debit card options in order to see which payment type is the better choice. A debit card can be a helpful tool for young people looking to learn about finances; however, they may not be able to build their credit history, which if held in good standing could go a long way toward getting loans, insurance and other important life steps later on.

by: Pete Miller

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