Should I Add My Child as an Authorized User on My Credit Card?
As a parent, you want to do everything you can to set your child up for success. And lately, the importance of helping them understand personal finance has become clear. While you work with them on saving and living within their means, you may also want to talk to them about credit.
You may even want to help them start establishing good credit, which is a cornerstone for financial independence. One way that you can help your child establish credit is by adding them as an authorized user to one of your credit cards. But before you add your child as an authorized user, it is important to understand what it means and how it will affect their credit and yours.
What Is an Authorized User on a Credit Card?
When you make someone an authorized user on your credit card, you are giving them the ability to charge things to your account. They will get their own card in their name. But all of the charges they make will be applied to your account, and you will be responsible for paying them. It is important to understand that any charges your child makes on the card will ultimately be your responsibility.
Benefits of Making Your Child an Authorized User on Your Credit Card
Adding your child as an authorized user to your credit card can help them in several ways. First, it can help them establish a credit history. Because the card is in their name, they will start building a credit file. This helps them because it lengthens their credit history, which makes up 15% of their FICO credit score. The age at which you can make your child an authorized user varies by card. But it will be difficult for your child to get a credit card on their own until they are 21 (some cards can be obtained at 18 but with stricter application requirements). Adding your child as an authorized user before they are 21 will give them a longer credit history.
Another benefit of adding your child to your credit card is that gives them a chance to learn more about credit. You can teach them firsthand about responsible credit usage, never charging more than you can pay off, and always paying on time. Teaching them these necessary lessons will help them maintain a better credit score throughout their life.
Drawbacks and Risks of Adding Your Child as an Authorized User on Your Credit Card
There are a few things to keep in mind when adding your child to your credit card as an authorized user. First, it is important to remember that every charge they make is ultimately your responsibility. Have conversations about credit limits and help them be aware of what they are spending. Some parents add their child as an authorized user with the understanding their child will only charge gas, transportation, emergencies, or other certain expenses.
If you are adding them to your card to help them build their credit score, make sure that the card reports authorized users to the credit bureaus. If they don’t, having your child as an authorized user won’t impact their credit score. Your card’s reporting policy should be included in their policy statement.
What your child does as an authorized user on the account will affect your credit score, and what you do will affect theirs. So, if you’re carrying a balance on the card due to either party’s spending, both credit scores could suffer as a result. This is because you will be using more of your available credit, causing your credit utilization ratio to be higher.
Final Thoughts on Authorized Users
Adding your child as an authorized user to your credit card is a good way to help them start to understand credit and build both credit and financial responsibility. But it is important to remember that all charges they make, whether you approved them or not, are ultimately your responsibility to pay off. If you decide to add them to your account, make sure that you also help them understand credit and learn to use it responsibly. Having a good credit score is helpful in the real world and adding your child as an authorized user can help them on their path.
Kimbree Redburn is an Accredited Financial Counselor® with a background in economic development. She works with her clients to help them understand their financial options and make money decisions with confidence. She believes that financial education gives people a chance to build a better life.