Did you know there’s an easy way to build your young person’s credit before they have even moved out on their own? If you have good credit yourself, you can add your child as an authorized user on your credit card account.
What is an authorized user?
An authorized user is someone who is given full access to the account’s credit line. They are not, however, legally responsible for the charges on the account. The authorized user will receive their own credit card with their own name on it. An authorized user is not the same as being a joint account holder. A joint account holder is on the account but is also legal responsible for payment of the debt.
How does this help?
Well, some card issuers report the credit activity of every person on an account, both card members and authorized users. If you have good credit your score will automatically be reflected on the credit reports of anyone who is an authorized user. For that same reason, you should never become an authorized user on anyone’s card if they have bad credit because it will reflect negatively on your credit score.
Who should not do this?
If you yourself, do not have good credit, do not put your teen on as an authorized user. Instead spend some time cleaning up your own credit first.
How can I get my teen added as an authorized user?
At our house, we add our kids as authorized users on our cards when they turn sixteen. I recommend that at least by the last year of high school your teen be put on your credit card as an authorized user if you have a good credit history and score. If you have been using our money plan for middle school and high school, they should be prepared for this next step. This will enable them to start building a credit history. Make sure your card issuer doesn’t charge to add authorized users. Your teen doesn’t even have to use the card, if you feel he is not quite ready yet. Just having his name as an authorized user will begin to build his credit history.
Some people put their kids on as authorized users when they are younger. I don’t see the benefit of that. At least a year is plenty. Longer than that and there is more of a chance of identity theft.
To add them call your bank or card issuer. Make sure that they report the credit activity of authorized users. You also may be able to go online and add them through your account portal.
Any more tips?
If you do give him the card, I would keep a close eye on the account and make sure he is handling it responsibly. My teens are only allowed to use the card with prior permission. For example, they can always use it to put gas in the family car, or I may ask them to run to the store to pick up groceries for me. It’s so awesome once they are driving and can do that! They cannot use this card for themselves because they are responsible for their own purchases.
If you do this you teen will be ahead of the game when it comes time to start adulting. Having already built a strong credit score will enable them to get into that first apartment easier or maybe get a great rate on their first mortgage!
Think credit cards are bad? Here are my thoughts on that subject.