Adding your child as an authorized user on your credit card can be a smart financial move under certain circumstances. It allows your child to build credit history while letting you monitor their spending. However, it also comes with risks you must consider carefully before taking this step.
This post will walk you through what you need to know about adding your child to your credit card.
An Overview
Good credit is crucial for getting loan approval, renting an apartment, securing a favorable interest rate, and more. However, building credit takes time. Adding your child as an authorized user on your credit card allows them to benefit from your long credit history and eventually establish credit themselves.
When you add your child to your account, your credit card company will report their usage to the major credit bureaus. As long as you make on-time payments, it will have a positive impact on their credit score. They become an authorized user without legal responsibility for the debt. You retain full financial liability.
While this option can turbo-charge your child’s credit standing, it also comes with risks. They could overspend or even engage in fraud that leaves you footing the bill. Careful supervision and setting clear boundaries are key to making this a wise move.
The Pros of Adding Your Child to Your Credit Card
Here are some of the biggest advantages of making your child an authorized user.
- Build Their Credit History
The biggest incentive to add your child to your account is giving their credit score a valuable boost. As an authorized user, their credit report will reflect the entire payment history of your account. So your good standing and long credit history will be theirs too.
As a result, your child can establish credit years before they would be able to open a card on their own. With limited or no credit history, most applicants under 21 don’t qualify for a standalone card. Being an authorized user bypasses this barrier.
- Learn Responsible Credit Habits
By making your child an authorized user at a young age, they’ll get firsthand experience using credit responsibly. You can show them your monthly statement and demonstrate smart credit card habits. This includes:
- Paying the balance in full each month
- Charging only what you can afford
- Avoiding late fees and interest charges
- Monitoring statements for fraudulent charges
Learning these habits early in life will benefit them immensely when the time comes to open their own accounts. They’ll understand how to manage credit wisely.
- Extra Card for Emergencies
Having their own card connected to your account means your child will have access to emergency funds if needed. For instance, if their debit card is lost or stolen when they’re out with friends, your credit card can be a backup source of payment.
Additionally, they can use the authorized user card for unexpected expenses that exceed their cash on hand or debit account balance. It provides a helpful safety net as they become more independent.
The Cons of Adding Your Child to Your Credit Card
While the benefits can be substantial, there are also some potential drawbacks to naming your child as an authorized user.
- Legal Responsibility for Debt
Even though your child won’t be legally liable for any charges on the shared credit card account, as the primary cardholder you are 100% financially responsible for all debt incurred.
Unfortunately, some parents wrongly assume their child will be on the hook for their own purchases. If your child overspends or even racks up fraudulent charges, you can’t hold them legally responsible. Being an authorized user means they utilize your credit line with your permission.
So before adding your child, ensure you’re willing to pay off the full balance every month no matter what they buy. Implement reasonable spending limits to manage your risk.
- Impact on Your Credit Score
Your child’s usage of the account and payment history will impact your credit score too. For instance, if your child pays late or misses payments, it can negatively impact your credit standing.
Also keep in mind that credit utilization (the percentage of your total credit limit that you use each month) is a key factor in your score. A child splurging up to your card’s limit can decrease your score.
To minimize risks to your own finances, set a low spending cap tailored to your child’s needs. Also carefully monitor account activity each billing cycle.
- Difficulty Removing Them
Many parents assume they can instantly remove their child as an authorized user. However, most card issuers require that the authorized user be notified with ample time to respond.
Your child must be notified in writing and given a period of 30 to 90 days to dispute the account closure. This makes it more difficult and cumbersome to react if your child becomes financially irresponsible.
Be sure you want to add them for at least 2 to 3 years minimum. Monitor their usage closely in case removal becomes necessary. Never add a former spouse or partner that you don’t trust.
What Age Should You Add Your Child to Your Credit Card?
Most financial experts recommend adding your child as an authorized user between the ages of 15 and 18. However, it ultimately depends on your specific situation.
Here are some key factors to consider:
- Maturity Level
Consider your child’s level of maturity and money management skills. Do they demonstrate responsible spending habits with cash and debit cards? Adding an immature teen who lacks restraint is unwise. Wait until they show more maturity and financial restraint.
- Educational Value
Around ages 15 to 18, your teen is on the cusp of adulthood when credit education becomes crucial. With supervision, they can gain valuable experience using credit wisely before college or work life. Ensure you take time to teach money management lessons.
- Added Privileges
Being an authorized user often comes with certain privileges like airport lounge access, rental car insurance, and more. Extending these perks makes the most sense when your teen is old enough to travel without parental accompaniment.
- Application Timing
Consider timing the account addition so your teen’s credit history is optimally established when they apply for student loans or other financing needs after high school. The longer positive history they have, the better.
While the late teen years are ideal in many cases, assess your specific child’s circumstances. An exceptionally mature 14-year-old may be ready. A less responsible 19-year-old may need more time. Gauge your teen’s readiness before moving forward.
How to Add Your Child to Your Credit Card Account
The process for adding an authorized user varies slightly across credit card issuers but generally follows the same basic steps:
- Contact Card Issuer
You will need to contact your credit card company directly either online or by phone. Provide them your account information and authorized user details. Online applications typically require your child’s name, birthdate, and social security number.
- Verify Identification
The card issuer will verify your child’s identity by requesting copies of their social security card, birth certificate, or passport. This ensures they match the identity details provided by the primary cardholder (you).
- Process Application
Once approved, the card company will add your child to the account as an authorized user. In 7-10 days, they will receive the credit card in their name linked to your account and credit limit. Activate, sign the card, and confirm receipt before providing it to your child.
The process takes about two weeks total, as issuers carefully vet authorized user applicants to prevent fraud. Be sure to explain to your child how it works before applying to set clear expectations.
Tips to Set Spending Limits and Boundaries
Giving your teen open access to your full credit limit right away is unwise. Instead, set defined boundaries and spending caps from the start to reduce risk.
- Low Initial Limit
Consider starting your teen at a $500 limit or less. This gives them flexibility for emergencies and occasional use without going overboard. You can gradually increase it over time as they prove responsible.
- Category Exclusions
Many issuers allow you to set category exclusions to block certain merchant types. For instance, you may prohibit cash advances, alcohol stores, hotels, and more. Declining risky categories reduces the chances of theft or abuse.
- Discuss Guidelines
Have an open talk with your teen about appropriate use cases and limits before providing access. For instance, the card may be for school expenses, emergencies, and family trips but not individual shopping sprees.
- Accountability for Overages
Consider requiring your teen to reimburse any overspending beyond the established limit through chore work or other means. Strict accountability teaches responsibility.
By proactively setting boundaries, your child will understand your credit card is for limited, practical uses, not unlimited personal spending. Adjust the training wheels as they demonstrate prudence.
Conclusion
Adding your child as an authorized user on your credit card can jumpstart their financial future. However, it also comes with risks like legal liability for debt and potential impacts to your own credit.
Set clear spending boundaries, start with low limits, monitor activity vigilantly, and make it a teaching moment. Used responsibly under parental guidance, authorized user status allows a teenager to establish credit and learn good habits.
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