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How Credit Cards Work for Kids

Curious about those cards that your parents pay with? Learn all about credit cards here!


Personal finance is important to understand, and learning about it as a kid can set you up for success going forward! There are big differences between credit and debit cards, and it can be confusing if you don’t know those differences or how credit cards work in general. Credit cards are fantastic tools in the financial tool belt if you know how to use them responsibly and to your advantage. 

It can be easy to get caught up in the concept of “free money,” but this is a common misconception about credit. Credit is not free money, and you should understand what you are getting into before accepting that contract with the credit card company.

Let’s learn more about credit cards, how they work, and how to choose the best one for you!

What Is a Credit Card?

Credit cards are plastic cards that many adults carry in their wallets to make purchases from stores or private vendors. Credit cards aren’t attached to a traditional checking or savings account; that is the role of debit cards. Credit cards are a line of credit issued by a bank, so when you use the credit card, you are spending the bank’s money and not yours.

How Credit Cards Work

A borrower applies to a lender for a credit limit, which is the amount of money that a lender is willing to lend to the borrower. The lender says “yes” or “no” to the application and issues the card to the borrower if the answer is yes. Lenders use credit scores and credit history to determine whether they want to lend money. 

Credit cards are not like loans where the total amount of money is given to you upfront. Borrowers can use the credit card’s total credit limit and repay it, then use it again or use part of the credit limit and make minimum payments. However, you should always pay off the full balance on your credit card each month if you can. Credit cards have high interest rates, so making the minimum payment can be expensive long-term and bad for your credit score.

What Are the Benefits of Credit Cards?

Credit cards provide adults with many advantages and benefits that add to our lives. I have one credit card that I use for almost every purchase because I protect my identity by using it, and I pay the bill in full every month, so I don’t have to pay interest on purchases that I make. Rewards that I have earned from using my credit card go towards vacations every 3 months because I have learned the art of credit card hacking. 

  1. Credit cards allow borrowers to earn cash rewards or points that can be used towards flights or hotels on trips. Some card companies offer sign-up bonuses or incentives that can be used to pile up rewards faster.
  2. Using credit cards allows you to use the bank’s money rather than your own and keep your money in savings. You can make minimum payments every month or pay it off in full.
  3. I use a credit card to pay all of my bills because I have had my identity stolen before, and I can easily have a credit card canceled after filing a fraud report without putting my own money at risk.
  4. Credit cards help build credit, and introductory cards have low limits like $300-500, so it’s easy to learn how to manage credit without having too much risk.
  5. Most rental car companies and hotels require a deposit using a credit card, so it’s helpful to have one available for travel purposes.

What Are the Dangers of Credit Cards?

When I was in my early 20s, I got into trouble with credit card debt. I missed payments because I got caught up with friends that spent money without thinking about it, so I tried to keep up with their lifestyles. I quickly learned that I couldn’t maintain that level of spending. Still, it took me years to work out of that amount of debt. I have worked hard to educate others on responsibly managing credit card usage to your advantage rather than the lender’s. 

  1. Credit card debt can quickly get out of control and add up quickly if you’re an impulse shopper or have too many emergencies in a short period of time.
  2. Missing credit card payments can impact your credit score in the long term.
  3. High interest rates can lead to high payments if the debt is not paid in full every month.
  4. Applying for too many credit cards during a certain amount of time can impact your credit score or indicate to lenders that you may be in a difficult financial position.
  5. If you use more than a certain percentage of your revolving credit, this can impact your credit score or your ability to apply for more debt at a good interest rate. 

Where Can I Get a Credit Card and How Old Do I Have to Be?

In the United States, 18-year-olds can legally sign contracts, but most lenders require proof of stable income before approving you for a credit card. Kids can be added to a parent’s account before they turn 18 as an authorized user to build your credit if the parent is responsible for paying their accounts on time. 

Most banks and credit unions offer a credit card option, but choosing the best one for you is something to consider before you start applying for cards, so you don’t have too many hits to your credit report due to too many inquiries. When looking at credit card options, consider your interest rate, approved credit limit, rewards offered, and how rewards can be redeemed. Some companies that offer rewards have strict rules for redeeming them, like black-out dates for flights.

Credit Card Definitions

  • Credit card: Payment methods (plastic or metal cards) that are attached to a line of credit
  • Debit card: Payment method (usually a plastic card but maybe metal) that is attached to your checking account
  • Personal finance: Managing money and financial resources for budgeting, saving, giving, and investing
  • Line of credit: The amount of credit that is extended to a borrower by a lender
  • Credit limit: The maximum amount of money that a borrower can use on a credit card
  • Borrower: A person or business that uses money or assets from a lender in exchange for interest payments
  • Lender: A person or business that loans money or assets to borrowers
  • Credit score: A 3 digit number assigned to individuals or businesses that reflects a borrower’s ability to repay debt
  • Credit history: A picture of credit usage and debt repayments
  • Minimum payment: The smallest amount required by a lender that is paid every month
  • Fraud report: When lenders are made aware of suspicious or fraudulent activity by a borrower, and the borrower freezes their credit to prevent further activity
  • Interest rate: The amount of interest that is charged to a borrower based on how much money has been lent by a lender

Books and Resources to Learn More About Credit

What is a Credit Card?: Personal Finance for Kids (Econ For Kids). The targeted age group is 3-6 years old. Ava takes a shopping trip with her dad and watches him pay for groceries with a card while wondering how that works. Her dad explains to her about what credit cards are and what can be paid for with a credit card.

Finance 101 for Kids: Money Lessons Children Cannot Afford to Miss. The targeted age group is 8-12 years old. Kids can learn about personal finance fundamentals from how credit cards work to how money was first established to savings and investing. This book is the first in the series and was written for kids by a father of 4 that wanted to share key financial lessons with his own kids.

Finance 102 for Kids: Practical Money Lessons Children Cannot Afford to Miss. The targeted age group is 8-12 years old. This is the second in the series by Walter Andal, a dad of 4 that wanted to share his financial experiences and expertise with his kids. Topics covered include: how to manage credit, how to manage money well and manage impulsive spending, various ways to stretch money, and how to avoid outside influences on your finances like social media.

A Smart Girl’s Guide: Money (Revised): How to Make It, Save It, and Spend It. The targeted age group is 8-11 years old. This book aims to empower girls to be self reliant, set goals, and work towards making those goals a reality. Topics covered include: credit cards and responsible usage, saving, investing, starting a business, and shopping responsibly. 

The Everything Kids’ Money Book: Earn it, save it, and watch it grow!. The targeted age group is 8-11 years old. Kids can learn about how credit cards work, the process of how money is made, about financial technology and how to use it, and how to make money then save or invest it. This is the updated version that includes how to use online banking apps and set aside money into savings accounts.

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About the Author

Jessica Anglin

Jessica was raised in a household where her parents didn't know how to pay bills on time and indulged in life's pleasures on a consistent basis in order to cover the misery from working jobs they hated for money that wasn't enough to live off of. She took on the role of caregiver to 4 siblings at age 15 and started her first business selling tie-dye t-shirts in order to buy food and provide a stable home. Nineteen years later, she owns three successful businesses, has earned an MBA in Finance, and works daily to set an example for the next generation on how to build wealth so they never face the same struggles.

Last updated on: July 8, 2024