How young is too young to acquire a credit card?
Australians can apply for a credit card when they’re 18, but is it a good idea for teens to pay with plastic?
Almost one in four Australians get their first credit card in their teens, according to finder.com.au research. A survey of 2,006 Australians conducted in August 2016 found that 16.55% of cardholders got their first credit card when they were 18, with a further 6.28% acquiring their first when they were aged 19. Meanwhile, just over half of Australians (55%) signed up before their 25th birthday, whereas over 80% of credit card holders got their first card by the time they turned 30.
As the cost of living goes up, it's no surprise that a significant number of young Australians are turning to plastic to cover everyday expenses. But, while Australians are eligible to apply for a credit card once they've turned 18, is it really wise for a teenager to be wielding a piece of plastic that could land them in debt and impact their credit history for the rest of their lives? Credit cards can be a convenient way to manage your cashflow and build up your credit history, but they can also be an easy way to fall into debt if you’re not careful. Unfortunately, Australians aren't taught how to use credit cards in high school or at university, so it’s likely that many teenagers (and first-time cardholders in general) would be signing up for credit cards without fully understanding the repercussions paying on credit could have.
The truth is, it doesn’t really matter how old you are. If you don’t understand how a credit card works, it could be easy to fall into credit card traps. For example, if you’ve never owned a credit card, you might not understand how interest and repayments work. If you're under the impression that you only need to make the minimum repayment of 2% or 3% of your total balance each month, you might not know that the rest of your debt will start to grow with interest. You might also not realise that paying your balance in full is the only way you can access features such as interest-free days, something that isn't made clear in the advertising for most credit cards. If you default on payments or accrue unmanageable debt, these can leave black marks on your credit file that can impact your likelihood of approval when applying for future loans such as a mortgage or car loan.
Getting a credit card when you're young isn't all bad, though. They can be a great way to build up your credit history, develop good budgeting habits and manage your cash flow while you're young. Plus, many cards such as student credit cards and low-interest rate cards, are suitable for first time credit card holders.
Regardless of your age, if you're unsure how a credit card works and are trying to decide which type of plastic is right for you, you should do some research first. You can use the finder credit card guide for beginners and credit card comparison tables to get started.