Should you make your child an authorized user on your credit card? It depends on a few things.
By setting up an authorized user relationship, your child has the opportunity to start building a positive credit history even if they are still too young to open a credit card of their own. Plus, teaching your children how to use credit responsibly can help them build the kind of good financial habits that could last a lifetime.
Laura Spencer, an educator and design thinker who is currently a Designer-in-Residence at UCSD’s Design Lab, made both of her daughters authorized users on her credit cards. “My oldest daughter is almost 24, and just purchased her first home,” says Spencer. “This is because she learned how to handle money responsibly and had established good credit. I think the credit card definitely helped her credit score.”
However, not all parents think that making their children authorized users is a good idea. Financial adviser Joyce Rojas decided that she would help her son build his own credit from scratch.
“What we did instead of adding him as an authorized user is had him save $300 of his own and apply for a secured card,” Rojas explains. “Six months later, that same credit card sent his $300 back and offered him $1,500 a credit line. He built his own credit by himself! This taught him that he can create his own financial freedom.”
What happens when you make your child an authorized user?
When you make your child an authorized user on your credit card, your child is able to make purchases on your existing line of credit. Your child will receive a unique credit card that is linked to your account. This card can be used to make purchases in person and online, and all of the charges made on the card will appear on your monthly credit card statement.
You are responsible for paying all charges made on your account—even the charges made by your child—and most credit cards allow parents to set spending limits to ensure that their child doesn’t accidentally charge more than the household can afford.
“I decided not to have the credit card company put a limit on the account because I wanted it available in case of an emergency,” Spencer told us. “For example, if their car broke down far from home, I didn’t want the card declined because the repairs were over a certain dollar amount. Since my credit card app shows me how much is spent per user, it worked out fine.”
Can making your child an authorized user build their credit?
One of the biggest benefits of making your child an authorized user is the opportunity to help your child build good credit at a relatively young age. When a person becomes an authorized user on a credit card, any activity on the credit card has the potential to become part of their credit report.
If you make an on-time payment on your credit card, for example, your child could have that same on-time payment added to their credit history—and since payment history makes up 35% of your FICO credit score, this positive payment record could give your child the opportunity to start building credit even before they are old enough to open a credit card of their own.
What does that mean in real life? “With my youngest, who is now 19, we just purchased a car and put $9K on a car loan,” Spencer explains.” When we applied, she had a fabulous credit score based on my card.”
Having good credit when you take out a car loan could save you a lot of money, in terms of lower interest rates. Building good credit early can also help your child access some of today’s best credit cards—especially when they might otherwise be limited to starter credit cards or credit cards for people with no credit history.
What else can you do to help your child build good credit?
Whether or not you choose to make your child an authorized user on your credit card, there are plenty of ways to help your child build good financial habits and establish a positive credit history.
“We talked a lot about credit, and why it’s important to live within our means,” says Spencer. “I was also battling a huge student loan debt, so I made sure they understood how compounding interest worked, and why it is important to pay off credit card debt.”
Spencer also set ground rules on how her daughters could use the shared credit card. “When they were full-time students, they were allowed to fill up their cars with gas once a week, and I would pay for that expense. If they wanted to use it for other purposes, like buying something on Amazon, they had to let me know the cost beforehand and pay right away with cash. This was to teach them that a credit card is not about spending money we don’t have, but about paying for purchases wisely.”
Rojas, on the other hand, decided to teach her son about credit by helping him get a secured credit card of his own. That way, he would be responsible for all of the purchases—and all of the payments.
“It gives him privacy around what he’s purchasing rather than me seeing everything he buys,” Rojas told us. “It also frees me from having to ask him why he’s spending on XYZ or telling him he’s spending too much. I don’t want to babysit my teenager—I want to empower him to become aware of the repercussions of his own actions. Getting him a secured card vs. adding him as an authorized user did just that!”
How long should your child be an authorized user?
Some parents may decide to remove their children as authorized users once their children graduate from college or start their first job. Other parents prefer to keep the authorized user relationship active.
“Both my children are adults now and are still on one of my credit cards,” says Spencer. “They don’t actively use it, but it provides them a positive credit history, and more importantly, they always have access to funds in an emergency.”
Keeping her daughters as authorized users also gives Spencer the opportunity to provide financial support at a moment’s notice. “Not too long ago, my oldest was driving across Texas and called to chat. I could tell she was exhausted and didn’t want her to risk her life by continuing the drive so I told her to get a hotel and put it on my card,” Spencer told us. “I think these types of moments build a strong mother-daughter relationship in all areas. They know I will always be there for them, regardless of what the situation is or the need.”
The bottom line
Should you add your child as an authorized user on your credit card? For some parents, it’s an easy way to help their children build credit at a relatively early age. Other parents may encourage their children to open their own lines of credit instead of piggybacking on a shared credit account.
No matter which path you choose, make sure you take the time to teach your children how credit works and the importance of establishing a good credit score. That way, your children will have the tools they need to build a solid financial future.