As a parent, you want to set your children up for success, and that includes teaching them about financial responsibility. One way to do that is by adding your child as an authorized user on your credit card. This strategy can help them build credit history, learn money management skills, and earn rewards on their spending – all while keeping you in control of the account.
In this guide, we’ll explore the pros and cons of making your child an authorized user, how to do it, and other ways to help them establish good credit habits. We’ll also address common questions and concerns parents have about this approach.
What Is an Authorized User?
An authorized user is someone who is granted permission to use a credit card account but is not legally responsible for the debt. The primary cardholder (the account owner) is still liable for all charges made by authorized users.
Authorized users typically receive their own card with the same account number as the primary cardholder. Some issuers, like American Express, provide unique card numbers for authorized users to make tracking individual spending easier.
Pros of Adding Your Child as an Authorized User
There are several compelling reasons why parents choose to add their children as authorized users on their credit cards:
Help Them Build Credit History: One of the biggest advantages of making your child an authorized user is the opportunity to help them establish credit history early on. When you add your child to your credit card account, the account’s entire history – including payment records, credit utilization, and age of the account – can become part of their credit report.
This head start on building credit can make it easier for your child to qualify for loans, credit cards, apartments, and other financial products when they become independent. As Forbes Advisor notes, having good credit history can also lead to lower interest rates and more favorable terms.
Teach Financial Responsibility: Adding your child as an authorized user provides a hands-on learning experience for managing money and credit. You can set spending limits, review monthly statements together, and have conversations about budgeting, interest rates, and the consequences of overspending.
“A credit card is a useful tool to help teach your children financial responsibility,” says Forbes Advisor. “Authorized users are allowed to make charges to the primary cardholder’s credit card. This can teach young people to pay off charges each month without incurring interest if managed properly with oversight from a parent or guardian.”
Earn Rewards on Their Spending: If you have a rewards credit card, any purchases your child makes as an authorized user will earn you points, miles, or cash back. While their spending may be relatively small, those rewards can add up over time – especially if they use the card for recurring expenses like gas or groceries.
Provide Access to Benefits: Some premium credit cards extend certain benefits to authorized users, such as airport lounge access, rental car coverage, and roadside assistance. This can give you peace of mind when your child is traveling or driving, and it’s a perk they may not have access to otherwise.
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Cons of Adding Your Child as an Authorized User
While there are advantages to making your child an authorized user, it’s important to consider the potential downsides as well:
- You’re Responsible for Their Charges: As the primary account holder, you are legally responsible for paying off any charges your child makes as an authorized user. If they go on a spending spree or fail to reimburse you for their purchases, you’ll be on the hook for the debt.
- Their Spending Could Impact Your Credit: High credit utilization – the amount of available credit you’re using – accounts for 30% of your credit score calculation. If your child racks up a significant balance on your shared account, it could increase your overall utilization and potentially lower your credit score.
- Misuse Could Hurt Their Credit: Just as responsible usage can help build your child’s credit history, mismanaging the account through missed payments or high balances could damage their credit profile. This negative information will remain on their credit reports for years, making it more difficult for them to qualify for loans and other financial products down the road.
- Some Cards Charge Authorized User Fees: While many credit cards allow you to add authorized users for free, some – particularly premium travel rewards cards – charge an annual fee for each additional user. For example, the Chase Sapphire Reserve® charges $75 per year for each authorized user.
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How to Add Your Child as an Authorized User
If you’ve weighed the pros and cons and decide that adding your child as an authorized user is the right move, the process is generally straightforward. You’ll need to contact your card issuer by calling the number on the back of your card or logging into your online account.
Be prepared to provide the following information about your child:
- Full legal name
- Date of birth
- Social Security number
- Mailing address
- Phone number
- Email address (for online account access)
- Relationship to the primary cardholder
Some issuers have age restrictions for authorized users, so be sure to ask about those requirements as well. American Express and Barclays allow children as young as 13 to be added, while Discover’s minimum age is 15.
Once your child is added, they’ll receive their own credit card with instructions for activating it. At this point, you can decide whether to give them permission to use the card and set any ground rules you see fit.
Removing an Authorized User
If you decide that being an authorized user is no longer the right fit for your child, you can remove them from your account at any time by contacting your card issuer. Experts generally recommend keeping your child as an authorized user for at least a couple of years after they open their first credit card or loan to continue benefiting from your account’s credit history.
When you remove an authorized user, it’s a good idea to request a new card number for yourself to prevent any unauthorized charges from being made on the old card.
Other Ways to Help Your Child Build Credit
Adding your child as an authorized user isn’t the only way to help them establish good credit habits and history. Here are some other strategies to consider:
- Open a Secured Credit Card: A secured credit card is a great option for building credit from scratch. With this type of card, your child will need to put down a refundable security deposit (often a minimum of $200) that becomes their credit limit. As long as they make on-time monthly payments, their positive payment history will be reported to the major credit bureaus.
- Become a Co-Signer on a Loan: If your child needs to take out a loan for a car, student loans, or another large purchase, you can co-sign on the debt to help them get approved and build their credit through on-time repayment. Keep in mind that as a co-signer, you’ll be equally responsible for the loan balance if your child fails to make payments.
- Add Them as an Authorized User on Other Accounts: Credit card accounts aren’t the only ones that can help build credit history – your child may also be able to benefit from being an authorized user on other types of accounts you have, such as mortgages, auto loans, or personal loans. Check with your lenders to see if this is an option.
- Use Tools for Building Credit: Various apps and services are designed specifically to help people with little or no credit history establish their credit profiles. Tools like Self, Experian Boost, and FICO’s UltraFICO Score use alternative data like rent, utility, and streaming service payments to create credit reports and scores.
- Make Them an Authorized Payer: If adding your child as an authorized user isn’t an option, some credit card issuers allow you to add them as an “authorized payer” instead. This designation gives your child permission to make payments on your account but not to make purchases.
Conclusion: Setting Your Child Up for Financial Success
Adding your child as an authorized user on your credit card can be a powerful tool for helping them build credit history and develop healthy financial habits from an early age. By providing a hands-on learning experience with money management, you can set them up for future financial independence and success.
However, this approach isn’t without risks. You’ll need to have open and ongoing conversations with your child about using credit wisely and closely monitor their activity on the account to prevent overspending or missed payments that could damage both of your credit profiles.
Ultimately, the decision comes down to your child’s maturity level and your own comfort with giving them access to your credit. If you choose to make them an authorized user, be sure to continue modeling responsible credit behavior and provide plenty of guidance along the way.
Building a strong credit foundation takes time and discipline. But by starting your child on the right path and utilizing strategies like authorized user status, secured credit cards, or credit-building tools and services, you can increase their chances of achieving financial milestones like car loans, mortgages, and top-tier credit cards with ease down the road.
READ ALSO: The Ultimate Guide to Credit Card Minimum Payments: Calculations, Impacts, and Strategies
Frequently Asked Questions
Does being an authorized user build my child’s credit score?
Yes, when your child is added as an authorized user on your credit card account, the account’s payment history and other details can be added to their credit report and factored into their credit score calculations. This helps them start building a credit profile, even if they don’t have any accounts of their own yet.
Can I set spending limits for an authorized user?
Many credit card issuers allow you to set custom spending limits or purchase alerts for authorized users. This can help you monitor and control your child’s spending on the account. However, policies vary by issuer, so you’ll need to check if spend limits are available for authorized users on your particular card.
What happens if I miss a payment or default on my account?
Any negative information like missed payments, high balances, or charge-offs on your credit card will also impact the credit reports and scores of any authorized users, including your child. That’s why it’s crucial to continue using credit responsibly after adding an authorized user.
Will removing my child as an authorized user hurt their credit?
Removing an authorized user generally won’t directly impact their credit score as long as they have other accounts and credit history built up independently. However, the account’s history and age may be removed from their credit reports, which could cause their scores to dip temporarily until their own credit profile is well-established.
At what age should I add or remove my child as an authorized user?
There’s no definitive “right age” since it depends on your child’s maturity level and readiness to handle credit responsibly. Many experts suggest adding them as teens to start building history, while others prefer waiting until age 18 or later. Reassess the situation periodically to determine if being an authorized user still makes sense.
In addition to these FAQs, be sure to check your credit card’s specific policies and requirements around adding authorized users. Every issuer has slightly different rules regarding minimum ages, fees, and spending limits for additional cardholders.
