As a parent, you want to set your child up for success. This includes financial success. You want your child to make good decisions with their money when they get older so they don’t get trapped in the vicious cycle of credit card debt or other financial hardships. One of the most important factors for financial success is having good credit history and using credit responsibly. One way to help your teen start building their credit history early is to add them as an authorized user on your credit card. While not all parents are comfortable doing this, it is worth weighing the pros and cons.
What is an authorized user?
An authorized user is someone who can use your account and has a credit card with their name on it, even though you are the primary account holder. They can use the card as if it is their own account. However, you are the primary cardholder, so you are ultimately responsible for paying all the charges. The credit usage of the card goes on both the primary account holder’s and the authorized user’s credit report, so it affects both your credit scores. Some parents may opt to add their teen as an authorized user to help them establish credit history. The minimum age of an authorized user varies depending on the credit card issuer. For some, the minimum age is 16 years old, but for others, it can be as young as 13.
Pros of Adding Your Teen as an Authorized User
One of the biggest advantages of having your teen as an authorized user on your credit card is that they can start building credit history from a young age. Length of credit history is a factor in determining your credit score, and the older the account, the better your score. If your child is able to start building their credit history when they’re 16, but the time they’ve graduated from college and are ready to start their adult lives, they will already have a solid credit history. Another advantage of adding your teen as an authorized user is it teaches them real life experience with credit cards. They will understand before they reach adulthood that responsible credit card use is important.
Cons of Adding Your Teen as an Authorized User
The main risk of adding your teen as an authorized user on your credit card is the possibility that they might not be responsible enough yet. Your original intention of helping your child build credit could backfire if they don’t use the card wisely. If they make large purchases on your credit card and are unable to pay it off themselves, you’re stuck footing the bill. If they max out your card and your credit utilization rate goes up significantly, your credit score will also suffer, even though it wasn’t you who made the purchases.
How to Decide Which Option Is Best
There’s not exactly a right answer to this. The most important thing is knowing your child and whether they are mature enough to have a credit card. If your teen is constantly spending their own money and asking to borrow more from you, they might not be ready for a credit card. You wouldn’t want to add them on your card, only for them to start racking up charges and damaging your credit score and their own. Conversely, if you know your teen is already responsible with money, then there is probably less risk in adding them as an authorized user.
If you aren’t comfortable with your child being able to make purchases on your credit card account, you can always talk to them about getting a secured credit card on their own when they turn 18. They can use that card when they get to college and make small purchases and pay them off on time and in full every month. Secured cards are a great way for young adults and those without credit history to start building their credit.
If you struggle to pay off debt, ACCC may be able to help. Call 800-769-3571 to speak to one of our credit counselors today!