Making Your Child an Authorized User on Your Credit Card
The Catch-22 of credit for young adults: you can't get a credit card because you don't have any credit but you can't build enough credit to qualify because you can't get a credit card. It's more difficult for young adults under age 21 to get a credit card on their own since Federal law now requires credit card issuers to verify their personal income before granting a credit card. Young adults who don't have enough income can't get approved for a new new credit card. Parents may help their kids avoid this conundrum by adding the child to one of their existing credit cards.
Many credit card issuers allow you to add an authorized user to your account - that is a person who's authorized to make charges on the account. The authorized user gets the benefit of the credit card without the official responsibility (as they would have with a joint credit card).
Making your child an authorized user on one of your credit cards gives you the opportunity to teach them about credit and help them begin building a good credit score without fully giving them the responsibility of having to make credit card payments. As the primary cardholder, you'll have to make the monthly payments on time since both of your credit will be impacted by any late payments.
Before you make your child an authorized user on your credit card, be sure you're both ready to take that step.
Is Your Child Ready to Be an Authorized User?
Is your child trustworthy? Having a credit card is a big responsibility. Since you're ultimately on the hook for the purchases made on your credit cards, you have to be able to trust your child to abide by whatever terms you set for the credit card. Does your child typically follow rules you've set at home? Is your child responsible with money? If you can't answer yes to these questions, your child may not be ready to be an authorized user on your credit card.
Set a Few Guidelines
Before you call to add your child to your card, make sure you set some guidelines for how the credit card should be used.
- How much can your child spend?
- What are they allowed to purchase?
- Should they ask for your permission before making a purchase? Or let you know after they've made the purchase?
- Who's going to make payment? By when?
- How long is the authorized user arrangement going to last?
Discuss the consequences of not following the guidelines, e.g. removing access for a month or two or permanently or lowering their purchasing limit. Stick to your word. If you say you're going to remove your child's authorized user status because they've charged too much, make sure you do that. Failing to follow through with consequences sends the wrong message. Creditors aren't lenient with mistakes, so you should teach your child that there are serious consequences of misusing a credit card.
Which Account Should You Use?
It may be better to open a separate account or to add them to a credit card that you seldom use. That way, your transactions aren't comingled and you can allow your child access to the online account without the concern of them viewing your transactions. Or, if you share a credit card with your child, make sure you leave a buffer of available credit so your child's purchases don't push the balance over the credit limit.
If you decide to add your child to one of your existing credit cards, choose one that has a good credit history. With some credit cards, the entire account history appears on the authorized user's credit report once they're added to the account. It would be counterproductive to add them to an account that's riddled with late payments and other negative items. These would be added to your child's credit report and hurt rather than help.
Primary and Authorized User Card Responsibilities
Once added to the account, your authorized user will receive a separate credit card in his or her name. Some credit card issuers even issue different account numbers for authorized users. Even with their own card, the authorized user is simply allowed to make purchases on the account. They typically can't make any other transactions - cash advances or balance transfers. They also can't make changes to the account, e.g. close the account, request a credit limit increase, or add users to the accounts.
Keep in mind that you're responsible for all charges made on your card, even those made by an authorized user, and even if the authorized user has verbally agreed to pay for their charges. As the primary account holder, the credit card issuer generally holds you responsible for the credit card balance.
Will It Boost Their Credit Score?
Credit score boosts from authorized user accounts were almost eliminated when FICO decided they would no longer include authorized user accounts in their credit scoring model. The decision was based on the number of people who'd exploited the loophole by purchasing access to authorized user accounts. Eliminating authorized user accounts would have hurt millions of consumers, so FICO instead tweaked their most recent credit score model - FICO 08 - to only include legitimate authorized user accounts.
The VantageScore 3.0 also considers authorized user accounts when calculating a score.
Ending the Authorized User Relationship
Once your child can qualify or credit on their own, there's not really a need to keep them as an authorized user. Removing your child's authorized user privileges is as simple as a phone call to your credit card issuer.