Adding your child as the authorized user on your credit card is a smart way to help him or her start building credit. But did you know that some major issuers don’t report authorized user activity to the credit bureaus? If your goal is to help authorized users build credit, you’ll need to make sure you get the right card.
For an explanation of what this means and how to be sure you’re putting your son or daughter on the right financial track, take a look at the details below.
Benefits to adding your child as an authorized user
First, let’s review what it means to add your child as an authorized user to your account: Essentially, you’re giving him or her the ability to make charges to card, but no responsibility to pay. In general, authorized users have access to the primary cardholder’s entire credit line, and will receive a card in their own name from the issuer.
There are several advantages that come with adding your child as an authorized user. For example:
- In most cases, you’ll be helping your son or daughter build good credit (see below for details).
- You’ll have the opportunity to teach your child about responsible credit use while still maintaining a large degree of control over the account. For instance, you’ll be able to easily see the charges your authorized user is making. This isn’t the case in other credit-sharing arrangements, like cosigning.
- The authorized user will be racking up rewards for the primary cardholder every time he or she swipes. This is a great way to earn extra points, miles or cash back.
» MORE: Credit card 101
Which issuers report authorized user activity to the credit bureaus?
While there are several good reasons to add your child as an authorized user to your credit card, the most common is to help him or her start building credit. However, this strategy only works if the issuer you’re working with is reporting authorized user activity to the credit bureaus.
Remember, the credit reporting system in the United States is entirely voluntary — there’s nothing that compels your issuer to send account information in your authorized user’s name to the bureaus. If it chooses not to, your child won’t see any credit-building benefits from piggybacking on your card.
So which major credit card issuers are reporting to the credit bureaus? To find out, the Nerds placed phone calls or conducted online chats with customer service representatives from nine big issuing banks in the United States. Take a look at our findings in the chart below, which is current as of November 2014:
|Issuer||Reports Authorized User Activity to Credit Bureaus?|
|American Express||Yes (all three bureaus)|
|Bank of America||Yes (all three bureaus)|
|Barclaycard||Yes (TransUnion and Equifax)|
|Capital One||Yes (all three bureaus)|
|Chase||Yes (all three bureaus)|
|Citi||Yes (all three bureaus)|
|Discover||Yes (all three bureaus); report looks different from that of primary accountholder|
|US Bank||Yes (all three bureaus); report looks different from that of primary accountholder|
|Wells Fargo||Yes (all three bureaus)|
Note: Details known about credit reporting varied from issuer to issuer. We reported all information that customer service representatives were able to convey.
The Nerds did our research based on the big issuers, and, as you can see, we found that most are reporting authorized user activity to the credit bureaus. But if your card is issued by a local bank or credit union, there’s a good chance it isn’t.
Since there are major costs involved with working with the bureaus, some small lenders don’t bother. Usually, you can find out if yours is reporting by placing a call to its customer service hotline. Or, consider applying for a new card from one of the larger issuers listed above.
Nerd note: Keep in mind that recent iterations of the FICO algorithm weigh authorized-user activity slightly less than primary-user activity in consumers’ credit scores. Although authorized-user activity will certainly have an impact, keep your expectations reasonable, and encourage your child to establish his or her own credit card account as soon as possible.
Other ways to help your child build good credit
Aside from making your child the authorized user on your card, there are other steps you can take to help your adult son or daughter build good credit:
- Educate him or her about responsible credit behavior. Emphasize paying bills on time, keeping credit utilization low, and only applying for one credit card at time.
- Also, explain the difference between credit and debit. Make it clear that using debit doesn’t help build a credit profile.
- Cosign your child’s first credit card or loan. Remember that this can be risky, so be sure to set up ground rules before moving forward.
The bottom line: Not all credit card issuers report authorized user activity to the credit bureaus. If you’re trying to help your child build credit, be sure you’re working with one that does. Also, consider other credit-building tactics to give your son or daughter a solid financial start.
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