A lot of parents want to give their kids a financial head start. Maybe you set up a savings account for your child, or a 529 plan to help fund their education. One important aspect of a financial portfolio that many parents don’t think about is good credit. Building credit is very important, but can be difficult to do as a young person. One way to help your child start the process is to add them as an authorized user on one of your own accounts.
Adding your child as an authorized user
According to Brette Sember, author of “The Complete Credit Repair Kit”, when your child reaches an appropriate age, adding them as an authorized user can give them access to a credit card in case of emergencies. It can also give them the opportunity to learn how to use a credit account responsibly. And let’s face it, we live in a world that is quickly becoming cashless. Whether it’s paying for an Uber or buying a burger, many businesses don’t accept cash. Having access to a credit card will help your child learn how to participate in our modern economy.
Each card issuer has their own policies about authorized users and what constitutes an appropriate age. Here are the minimum age limits for some of the major credit issuers:
|Card Issuer||Minimum Age Requirement||Information Needed|
|American Express||15 years||date of birth, Social Security number|
|Bank of America||n/a||date of birth, Social Security number|
|Citi||n/a||date of birth|
|Capital One||n/a||date of birth, Social Security number|
|Discover||15 years||date of birth, Social Security number|
|Wells Fargo||n/a||date of birth|
Steps to add your child as an authorized user
Once you’ve made the decision to add your child as an authorized user, you’ll want to contact your credit issuer to get them added to the account. Before you do that, take some time to talk with your child about credit, the importance of building good credit, and responsible spending habits. As the primary cardholder, you have 100 percent liability for all purchases made on your account, so it’s important to have a clear understanding of appropriate spending.
While most issuers allow you to add an authorized user for free, some higher end cards do charge. For example, The Platinum Card® from American Express charges $175 per year for up to three authorized users. Check with your issuer to see if there is a charge to add your child onto your account. Other questions you may want to ask is if you can restrict the spending limit for your authorized user and if your child will have their own account number.
How to manage your child as an authorized user
Once your child has been added to your account, you want to make sure they understand the usage guidelines. For starters, an authorized user doesn’t have to have access to a card to get the benefits of being on your account. However, if you decide to give your child access to a card, you want to clearly explain how to keep the card secure, when to use the card, what their credit limit is, and how you plan to manage payments. Most card issuers don’t issue new account numbers for authorized users, so it will be difficult to track when purchases are made from the primary or secondary account.
American Express is an exception to other companies, as it does give authorized users their own card numbers. It also allows the primary card holder to set spending limits for their authorized users. However, this system isn’t foolproof and it is possible that some purchases could slip past. Another way to keep purchases separated by users is to get a business credit card. With a business credit card, you will see who made what purchases on your monthly bill.
In the event that your child loses their card or it gets stolen, Discover offers the “Freeze It®” option to freeze the account temporarily until the card is located. This will, however, freeze the entire account, meaning the primary cardholder will also be denied access.
How does an authorized user build credit
An authorized user builds credit based on how the account they are attached to is managed. If the account they are attached to is in good standing, they authorized user will benefit. By the same token, if the account is not in good standing, the authorized user’s score will suffer.
In order for your child to really benefit from being an authorized user on your account, the account needs to be in sparkling condition. That means that payment history is spotless and credit utilization is between 10 and 30 percent. This stellar credit behavior will not only help your authorized user, but give your own credit score a boost as well.
Check with your card issuer to see how your authorized user will be reported to the major credit bureaus. It’s important to know if positive and negative information will be reported on the authorized user’s account. Ideally only positive behavior will be reported. In the event that you make a late payment or go over your credit limit, you want to make sure it won’t affect your child’s credit report. If there is any risk that your child’s credit may be damaged by staying on your account, you can ask that they be removed from the account. Removing them will delete the account from their report, thus eliminating any risk of the account impacting their credit score.
Removing your child as an authorized user
It only takes a few years to build up a credit score, so you won’t need to have your child on your account for too long. Once your child has built their credit up and has reached the legal age for their own account, it may be time to transition them. While it is legal for a child to get a credit card at age 18, they will have to show proof of income or get a co-signer to do so. At age 21, however, it is possible for them to apply independently.
Make sure that your child has been able to successfully maintain their own credit account before you transition them off of yours. Once you remove your child from your account, that account disappears from their credit report. If there is no other credit account to replace it, this will hurt your child’s credit score. When you’re ready to transition your child to their own credit card, start slowly by having them sign up for a secured credit card first. Another option is to have them sign up for a student credit card.
Once you’re ready to remove your child as an authorized user, you can simply make a call to your issuer. Some issuers also offer the option to remove authorized users online. Once you’ve removed your child from your account, you will be responsible for disposing of any cards they were issued.
The bottom line
Adding your child as an authorized user to your credit card is easy to do. And by adding them you will be giving them a chance to build their credit score and learn how to use credit responsibly.