Should You Add Your Child to Your Credit Card?
Building good credit is a marathon and not a sprint. And some kids may have already started that marathon without even knowing it.
That's because many parents add their children as authorized users to their credit card accounts. While this technically gives the child access to the credit line associated with the card, the move is usually more about helping the child begin to establish their credit history early. Which raises the question: is this something every parent should do? And what are the potential ramifications of adding your child to your credit card account? Here's what you need to know:
When can a child be added to a credit card?
Whether or not you can add your child as an authorized user on one of your credit card accounts usually comes down to the guidelines of the card issuer.
Nearly all major credit card companies, like American Express, Citibank, and Capital One, set the age minimum at 13, but that's not the case everywhere. Some may have a higher threshold (15 years or older), while others may even allow you to add minors under 13 under specific conditions. Check with your credit card company directly to learn about their specific requirements.
It's important to note that most credit companies don't require authorized users to be family members, except in the case of underaged users, where the card holder typically does have to be a parent or legal guardian.
What are the requirements for being added as an authorized user?
Again, every creditor has their own set of guidelines for adding an authorized user, but generally speaking:
- The authorized user needs to have a Social Security number or an Individual Taxpayer Identification Number
- The account itself needs to be in good standing and can't be delinquent or in default
There may also be a limit to the number of authorized users on the account.
How does being an authorized user help your credit score?
Being an authorized user on a credit card account typically means two thing:
- You can use that card to make purchases, but
- You aren't legally responsible for the debts that are accrued on that card
We'll set aside the question of whether or not you actually want your child to be able to use your credit card for now. As an authorized user, there's no requirement that you have a previously established credit history, nor is there any kind of income requirement. So assuming you meet that card's age requirements, you can become an authorized user pretty easily.
The credit impact of becoming an authorized user can be significant, but exactly how significant depends on the credit card issuer, the credit scoring model, and the behaviors of the credit card holder.
You may get the benefit of the full account history (but you also may not)
If you get added as an authorized user to a credit card that's been open for five years, do you get credit for that entire five year history of credit usage, or only the transactions that happen after you're added to the account?
The answer is: it depends on your card issuer. Some issuers will report the full credit history of an account for each new authorized user, regardless of when you were added. Meanwhile, others will only report activity that takes place after you're added to the account. Of course, the longer the credit history you inherit the better that is for your credit (assuming the card holder has been using the account wisely...more on that later).
You may get only a small boost if it's suspected that you've been added for the purpose of "piggybacking"
Credit scores aren't perfect. New scoring models get rolled out all the time, and the goal is usually the same: to use the available information to create an accurate picture of risk and creditworthiness.
Getting added as an authorized user for the express purpose of building your credit score isn't illegal or even unethical, but from a credit scoring model's perspective, it may be misleading. After all, if you're inheriting the benefits of someone else's good credit habits without actually displaying those same kind of habits yourself, it's hard to know if you're actually "worthy" of a strong credit score.
Because of this, some more recent credit scoring models have begun placing less weight on accounts where you're only an authorized user, especially in instances where there's reason to believe you were only added in a ploy to help build your credit history.
You may inherit someone's bad credit history
While you don't have a legal obligation to a debt as an authorized user, your credit can be negatively impacted by missed payments. In other words, a well-meaning parent who adds their child to a card in an attempt to help build their credit may also risk starting that child off in a credit hole if they miss payments or default on the account.
For a child with little to no credit, having an account in their credit report with one or more missed payments may be even more damaging than it would be for an adult with multiple accounts and a longer established credit history.
Should you let your child make purchases with the card?
Actually letting your authorized user child make purchases on the credit card is your call. There's a ton of risk in giving your kid a credit card and setting them free in the world, but restricted access to credit products early in life can provide an opportunity for you to teach them about safe credit usage.
You know your child and what they can handle. Whatever you choose, it's always a good idea to communicate clearly and often, and lay down clear ground rules (with even clearer ramifications for breaking those rules). Shame and fear, especially when it comes to money, has a tendency to make bad situations worse. If you can establish a space for your child to make mistakes (and comfortably own those mistakes) they'll be much better prepared to handle money going into adult life.
So, should you add your child as an authorized user?
Again, that's ultimately your call to make. Even if scoring models downplay the impact of authorized user "piggybacking" it's never a bad idea to help give your kids a leg up in life. Whatever you decide to do, though, we always recommend keeping your kids in the loop. Let them know why you've made the decisions you've made. And if they don't like those decisions, let them know what they can do or change to potentially make you change your mind.
It's never too late to rebuild your credit. Even if you have debts that are delinquent or in collections, MMI offers debt relief solutions to help you regain control of your finances and start building better credit.
