Adding your child as an authorized user of your credit card is a popular way of building his or her credit history and FICO credit score. While people under the age of 18 cannot sign for their own credit card, they can be added as an authorized user of someone else’s card which can have positive (and negative) effects on the authorized user’s credit history and FICO credit score.
If you’re thinking of adding your child as an authorized of your credit card, there are many important things you need to consider.
Authorized User vs. Cosigner:
Being an authorized user of a credit card is different than being a cosigner. As an authorized user, you’re able to purchase items on the card as if you were the actual account holder (some credit cards allow the account owner to set lower credit limits for an authorized user). The authorized user is under no legal obligation to pay back the credit card company for any charges incurred. All responsibility for paying back the credit card charges falls on the account holder(s).
As a cosigner on the credit card account (joint account), you and the cosigner are both responsible to ensure the credit card statement is paid as agreed. If one of you fails to pay, the other person must pay the bill or you will both have negative marks on your credit report.
Building Your Child’s Credit History by adding them as an Authorized User:
Even though your child may not be old enough for her own credit card, being an authorized user on your credit card will help to build her credit history. In fact, it is not uncommon for young people to find credit card accounts in their credit reports that are older than they are. How is this possible you ask? It can happen when a parent adds their son or daughter as an authorized user on a credit card they open before their child was born.
The older the credit card account the, the more positively it will affect your child’s credit history and credit score.
If you do add your son or daughter (or other family member) as an authorized user on your credit card, you need to make sure you keep the card in good standing. If you miss a payment or have some other negative information reporting to the credit agencies for that particular account, it can negatively affect the credit of the authorized user(s) as well.
Adding someone as an Authorized User May be a Good Idea:
There are certainly pros and cons of adding an authorized user to your credit card. If you’re children (or other family) is responsible and trustworthy, then adding them to your credit card account may be a viable way of giving them access to cash in an emergency and helping them build their credit.
On the other hand, you could end up hurting their credit in the event you forget to make a payment on the account.
One strategy that many parents have done in the past is to add their child as an authorized user on their credit card account but not give them the actual card. It’s just one of many ways to game the less than perfect FICO credit scoring system.
Does Your Child Really Need Good Credit?
The biggest caution I’d have for parents considering whether or not to add their child to their credit card is whether or not their son or daughter really needs to build up a perfect credit score at an early age.
When the child does turn 18, he or she will more than likely be eligible for credit cards with higher balances than they otherwise would have been able to qualify for. Having higher credit scores may seem like an advantage, but it can also create opportunities for your child to acquire higher levels of debt. I know all too well how aggressive credit card companies can be when peddling their cards on college campuses.
Adding your child or other family member as an authorized user is a legitimate way of building or rebuilding their credit, but it’s not a decision to be taken lightly. There needs to be boundaries and you need to make your expectations clear.
A Better Method
A much better way of ensuring your son or daughter is prepared financially when they get out into the real world is to teach them about personal finance and the responsible use of credit. The last thing you want to do is have enabled them to build an excessive amount of consumer debt without having the knowledge or income to pay it back.
Too Much Debt? Download our free Trees Full of Money Debt Snowball Calculator and see how quickly you can pay off your debt.