The Advantages of Obtaining Credit Early

Obtaining credit early helps you build a strong credit history and develop a good credit score before you get into major purchases such as homes, cars and businesses. Payment history and length of credit make up half of your FICO credit score, which is the basis of credit scores reported by the three major credit bureaus: Equifax, Experian and TransUnion.

Credit-Score Benefits

Getting a credit account early and making on-time payments on any balances helps you score big points on payment history and length of credit. Having a high credit score helps you get access to loans and receive more favorable rates and terms. Saving even a fraction of a percent on your interest rate for a home loan can save tens of thousands of dollars in interest over the life of a 30-year loan.

The Challenge

Lucy Lazarony noted in her February 2010 Bankrate.com article "Under 21? Credit Cards Hard To Get" that the Credit CARD Act of 2009 made it illegal for a credit-card provider to approve credit for someone under 21 years of age without an adult or guardian cosigner or proof of income needed to responsibly repay balances. Thus, a parent must usually cosign, to give his child a chance to establish credit early. This poses risks, though, as cosignors are equally responsible for the debts on the card.

Credit Lessons

Despite the risks, another advantage of getting credit early is learning its risks and responsibilities early on. One benefit of cards cosigned for is that the card provider cannot raise the card's limit without both cosignors authorizing it. This means your child cannot get a limit increase without your permission. You can set a relatively low limit and make your son or daughter responsible for on-time payments on the card. If he does not show responsibility, take the card and block further use. However, recognize the opportunity to teach your child the merits of managing credit responsibly.

Responsibility

Many adults struggle with spending discipline when credit cards are readily accessible in their purses or wallets. If a teen or young adult develops the discipline to have a card in his possession but recognizes the importance of budgeting and good spending habits, he may carry that discipline into adulthood. Disciplined credit habits are among the more important financial management skills someone can have as they take on more financial assets and obligations.