04.23.09
By John Ulzheimer
It's been my experience that most young people establish credit for the first time between the ages of 18 and 22. It's also been my experience that the vast majority of young people between those ages don't understand the ramifications of not properly managing their credit. So the question posed and briefly discussed here is the following: Is 18 too young or is it old enough? The following is a list of pros and cons of
establishing credit at age 18:
Pros:- Establishes a credit report in the system of all three national credit-reporting agencies. It’s generally better to get this over with as soon as possible so your credit file can begin the process of aging, which is good for your credit scores.
- Establishes a credit score once a new account eclipses six months of age. Again, this is generally better to do as soon as possible.
Cons:- The vast majority of the time, this first new account will be in the form of plastic. And many of these will be retail store credit cards, which are structured very much like non-prime credit cards. They have higher interest rates and lower credit limits.
- It’s very likely that the young consumer will be learning about credit management in a real credit environment. There is no “pre-season” in the credit world.
- The penalty for missing payments or otherwise poorly managing credit accounts will be more drastic because younger credit files mean more volatile credit scores, which don’t like poor credit management.
The Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) proposed by Senator Dodd and approved by the Senate Banking Committee in March of 2009 will limit the marketing of credit card accounts to people under 21 years old. It will also require a parent’s co-signature for someone under 21 to open a credit card account.
Having said all of this, as of right now you can open a credit card on your own when you’re 18, whether you’re ready or not. And while the debate is sure to rage on over the right age to begin establishing credit one thing is perfectly clear to me. Doing it properly renders the age debate mute, as does doing it improperly.
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