One of the most important financial lessons you can give your kids is how to manage credit responsibly. One way to do this is by adding them as an authorized user on your credit card account. It can be a strategic approach to teaching them how to use credit and potentially boost their credit rating early on.
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Do Authorized Users Improve Your Credit?
Authorized users can impact your credit as well as their own, depending on how they use your card. Adding your child to your account could help them build their credit history. According to Monica Bauder, Capital One’s senior director of digital partnerships and cardholder access, “With good payment behavior and responsible use, adding an authorized user may have a positive impact on the authorized user’s credit score.”
A credit card can only improve you and the authorized user’s credit histories if:
- You’ve never had a late payment
- You have a low credit utilization ratio (under 20%)
- Your account is more than a year old
Payment history is the most significant factor used to determine your score, while your credit utilization ratio is a close second. Your credit history is less impactful but no less important.
“If you are responsible with (your credit card), it’s very helpful to give (your child’s credit) a jump-start when they are in a position to begin building credit on their own,” Shanté Nicole Harris, a financial educator and Financial Common Cents credit consultant said.
Keep in mind that not every credit card provider includes authorized users when they report to the three major credit bureaus, so check your card issuer’s rules before adding your child.
Do Authorized Users Damage Your Credit?
Adding anyone as an authorized user to your credit card (not just your child) risks hurting your score because it can raise your credit utilization ratio. However, simply adding them to your account won’t do anything. It’s only if they start racking up expenses — which you will have to pay for.
That brings up an important consideration — making sure you and your child work out a payment plan beforehand. It would be best if you tried to pay off your entire balance once or twice a month. If you can’t manage both of your balances, your credit score will decrease as your credit utilization ratio rises.
Does Adding Your Child As An Authorized User Mean They Need A Credit Card?
The short answer? No. While adding your child to your account can be a good learning experience, that doesn’t mean you have to let them charge your card. It doesn’t matter if they use your card or not because your history will go back on their credit.
You may decide to add your child for the purpose of building their credit, which means you don’t have to give them a credit card. But if you do provide them with one, establish ground rules such as a payment plan or a monthly spending limit.
Some credit card providers — like Capital One — allow primary users to implement spending limits for authorized accounts. Card issuers don’t let you dispute charges made by authorized users, so keep that in mind.
What Age Should You Give Your Child A Credit Card?
There’s no hard and fast rule dictating how old a child has to be before you can add them as an authorized user. Most credit card companies have a minimum age of 13, but it comes down to how much you trust your child to be responsible with credit.
There are many considerations to take into account before adding your child to your account. Will your child be allowed to use the card? Do you trust them to hold up their end of the agreement? Do they intend on getting their credit card in the near future? These are just a few things to think about.
According to US News My Money, high school is the ideal age. Your child might need a credit card for miscellaneous purchases, and they’re old enough to recognize the importance of the privilege.
What To Do After Adding Your Child To Your Credit Card
Making your child an authorized user is only the first step. While it could benefit their credit score, they might run into trouble down the road, especially when applying for some types of loans.
“When you don’t have your own credit established,” Harris said, “it can still negatively affect you in the lender’s eyes. Don’t just ride on the coattails of someone who has good credit.”
You may decide to take your child off of your account after they build their credit. However, this could affect their credit rating since they’ll lose your payment history and credit age. Instead, consider having your child stop making purchases but let them stay on the account for the sake of building their credit.
- Black, Michelle. “Will Adding Your Children as Authorized Users Help Their Credit?” U.S. News & World Report, U.S. News & World Report, 7 Jan. 2021, creditcards.usnews.com/articles/will-adding-your-children-as-authorized-users-help-their-credit.