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Most 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. However, one important aspect of a financial portfolio that many parents don’t think about is good credit.
Building credit is very important, but it can be difficult to do as a young person. One way to help your child start the process is by adding them as an authorized user on one of your own accounts. Adding your child as an authorized user offers one way to help them learn financial responsibility while initiating the conversation about money.
This process may seem like a nail-biter because it gives them some semblance of independence financially, but as a primary cardholder, you will always be in control. But it’s ultimately up to you to help your child learn the dos and don’ts when it comes to using credit.
What’s the minimum age to be an authorized user?
According to Brette McWhorter 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||13 years old||Full name, date of birth and Social Security number|
|Bank of America||No minimum age requirement||Full name, date of birth and Social Security number|
|Citi Bank||No minimum age requirement||Full name and date of birth|
|Capital One||No minimum age requirement||Full name, date of birth and Social Security number|
|Chase||No minimum age requirement||N/A|
|Discover||15 years old||Full name, date of birth and Social Security number|
|Wells Fargo||No minimum age requirement||Full name and date of birth|
|U.S. Bank||16 years old||Full name, date of birth and Social Security number|
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.
The cost to add an authorized user
While most issuers allow you to add an authorized user for free, some higher end cards that charge an annual fee may charge a fee. For example, The Platinum Card® from American Express charges $175 per year for up to three authorized users, and the Chase Sapphire Reserve® charges an extra $75 annually for each additional authorized user.
On the flip side, cards like the Chase Sapphire Preferred® Card charges a $95 annual fee but doesn’t have an additional charge for authorized users. If you have a no-annual-fee credit card, there’s typically no charge for authorized users.
Before you jump ahead and add your child to your account as an authorized user, check with your issuer to see if there is an additional charge to avoid any surprises. 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’ll 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 when it comes to authorized user benefits, as it does give authorized users their own card numbers. It also allows the primary cardholder to set spending limits for their authorized users. However, this system isn’t foolproof and it is possible that some purchases could slip past.
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, the 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
When you decide the time is right to start your child on their credit journey, adding them as an authorized user to your credit card is an easy to-do. And by adding them to your account, you will be giving your little one a chance to build their credit score while teaching them how to use credit responsibly. That way, when they are not so little anymore, they can be financially strong and independent.