A strong credit history opens many doors in life. It can be the key to qualifying for credit, securing a lease and even getting a job. So it’s no wonder that parents look for ways to help their young adult children build credit, sometimes even before they’re out of the house.
Many parents have experimented with adding their children as authorized users on longstanding credit card accounts. But does this help a child’s score, and are there any pitfalls? Here are some Advantages and disadvantages to keep in mind.
A longer credit history can raise your child’s credit score. Giving kids a head start by adding them to your accounts in their teenage years will, in theory, make them look like more experienced borrowers and help their scores.
As authorized users, your children will have credit cards linked to your account. This gives you a chance to help them learn about the responsible credit card use. You can monitor their spending, ask them to contribute toward paying off their purchases and make sure they’re not getting into trouble. That way, they’ll have some experience when it’s time to open their first solo credit card account.
Not all credit card companies report authorized users to credit bureaus. If that’s the case, authorized user status won’t help kids build a credit history or benefit their scores. Call your credit card company and ask whether it reports authorized users before you go to the trouble of adding your child. Also, be aware that even if your card issuer does report authorized users, it won’t raise your kids’ score as much as having their own accounts.
Since it’s your account, you’re legally on the hook for any charges made by any authorized user. If your son or daughter overspends and doesn’t pay you back, you still have to cover the purchases or ruin your own credit by defaulting on the debt.
And one last word of caution…
Is your credit history good enough to share?
If you make a late payment or max out your card, this may reflect badly on your child’s credit history. Authorized user status will only be a boon to your child if you are an impeccable credit card user yourself. On-time payments are crucial, but it’s also important not to use too much of your available credit. Try to keep your balance on each card below 30% of the credit limit.
The bottom line
Adding a child as an authorized user may not magically give him a perfect credit profile, but it might help him or her a little. If you pay your bills on time, trust your child to handle a credit card responsibly and have a card issuer who routinely reports authorized users to the credit bureaus, then go for it. It can’t hurt, and it certainly might help.
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