Generally speaking, a child cannot apply for credit. That is not to say they won't. A credit arrangement is a contract, and the law says that contracts can only be entered into by people who understand the nature of the agreement and the consequences of not living up to it. In the eyes of the law, children are "infants" and not capable of making such a decision. Exceptions to this rule exist, however.
Voidable Contracts
To enter into a contract requires maturity and capacity. Children don't qualify until they reach age 18. They are legally protected by the "incapacity of minors." This means that, should a child be approved for credit and then doesn't pay the loan responsibly, the creditor can't take the child to court to enforce the agreement. The agreement is entirely voidable. However, the child would have to surrender the purchased items, and the creditor would have to refund all the payments made.
Parental Consent and Authorized Users
One exception to the rule is that parents can consent to their child's credit application. Parents may want to help their son or daughter build credit and learn the credit system, but generally speaking the parent will be bound by the terms of the agreement. An alternative to having credit in the child's name is for parents to add the child as an authorized user on their credit accounts. Authorized users have all the privileges of using credit, but none of the legal responsibilities for paying it back or making decisions about the account.
Emancipated Minors
Another exception applies to emancipated minors. Emancipation is when minors petition a court to free themselves from their parents' control. This release can occur among youth who demonstrate financial independence, get married, enter the armed services or a number of other circumstances. The emancipated status means the child is treated like an adult legally and can apply for credit.
Necessities
Credit agreements to acquire "necessary" goods and services represent yet another exception. These contracts include those for food, clothing, shelter or health and safety. In some cases, a loan for a car is considered a necessity. Utility bill accounts are other common examples of necessities. Cell phones, landlines, cable and Internet agreements and laptops are not necessities.
Athletes and Entertainers
Children who are in show business, modeling or professionally competitive sports can enter into contracts, even if there is a credit component to the agreement. The Talent Agencies Act in California law, however, limits the ability of children getting out of contracts by claiming they are too young.
Student Loans
A final exception occurs with student loans. Students who are entering college at age 17 are allowed sign for student loans, thanks to a 1992 amendment to the Higher Education Act. It applies to Stafford, PLUS and Consolidation loans but not to Perkins or direct student loans. Several states have also passed laws that say minors are competent enough to enter contracts for educational loans.
Accidents Happen
Credit card companies have inadvertently approved the credit applications of minors. This demonstrates the lack of due diligence in examining applications and warrants a lot of oversight by parents. In addition, the lack of oversight shows up when credit card companies fail to recognize the theft of minors' identity.
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