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Sean Talks Money: How to Give Your Child Excellent Credit

Credit Card Basics, Credit Cards
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My sister Megan called me recently asking for advice on picking a new credit card. Because she’s a college student and only 19, I assumed she’d qualify only for a student or secured credit card, so I spent 10 minutes talking her ear off about those options before I bothered asking whether she knew what her credit score was.

Her answer? 778, well into the “excellent credit” range many top-tier credit cards require. I was floored. My baby sister’s credit score was only 20 points lower than my own, despite my having a regular job, bill pay history and quite a few credit accounts to my name.

After some digging, I learned that my parents had basically gifted her near-perfect credit by the time she graduated from high school. Here’s how they did it and how you can try to do the same for your kids.

How it happened

Looking at Megan’s credit score dashboard at NerdWallet reveals some interesting stats:

  • The oldest credit card on her report is older than she is, at 23 years and 7 months.
  • The average age of her accounts is 7 years and 2 months. (Seven years ago, my sister was 12.)
  • 12 open accounts.
  • An unblemished payment history.
  • Over $100,000 credit line.
  • Four hard inquiries in the past year, which is above average, suggesting that her score could rise even further once the impact of those “hard pulls” dissipates.

» MORE: Understand your credit score

Those stats aren’t errors. They just reflect the potential power of “authorized user” status.

My parents didn’t have a master plan when they added Megan as an authorized user of their cards. They did so simply because giving her direct access to their cards was easier than giving her cash when she went on school trips, attended dance camps, or just stepped out for gas or groceries.

Fortunately for Megan, my parents have had many years of impeccable credit hygiene, and she automatically gained that same benefit as an authorized user of their cards. As a result, my sister has amazing credit, even though the longest-serving card she herself owns is just 1 year and 5 months old.

“The first time I found out my credit score was when I applied for an apartment and they requested my credit information,” Megan told me. “I remember sitting at the desk in my dorm room, and once I found out, I immediately called my mom and then I ran around and told all of my roommates. Sadly, they didn’t share the excitement, since they had no idea what a credit score was.”

Should you do this for your children?

This may sound odd, but you can add your children of any age as authorized users on your credit cards. Here are the caveats you should keep in mind:

  • The authorized user approach makes sense only if you can add your children to a card in good standing, meaning you’re paying the bills on time and keeping the balance low. Any mistakes you make on your card, such as missing a bill or charging a high percentage of your credit limit, would damage your children’s credit score.
  • If you’re concerned about what your children might do with access to your credit line, then simply don’t give them the actual cards. Add your children as authorized users and then — when the mail comes — shred the cards or bury them in your sock drawer. Your children will get the credit benefit regardless of whether their card is ever used; the credit bureaus don’t know the difference.
  • FICO and VantageScore, the two biggest credit scoring companies in the U.S., aren’t enamored of the idea of credit piggybacking. They’re working on newer versions of their credit-scoring algorithms to lessen the positive impact of being an authorized user, so your children may not benefit as much as my sister did. That said, lenders tend to be rather slow to adopt the newer credit scoring algorithms, so this may not have much real-world impact for a while.
  • If you trust your children with access to your money, you’ll also need to trust that they’ll protect your credit card information. Make sure they know credit card security basics, like to use it only at reputable websites and businesses, and to never leave cards lying around in public sight.

My mom, Kristen, has some additional advice: “Make sure your child understands the importance of credit and that it isn’t free money. They can go and buy something on credit and it be pretty easy, but they have to understand that the charge has to be paid.”

If you have a card with solid payment history, consider adding your children as authorized users. It can help them build their credit and learn other financial skills that will serve them well when they’re no longer under your roof.

Sean McQuay is a credit and banking expert at NerdWallet. A former strategist with Visa, McQuay now helps consumers use their credit cards and banking products more effectively. If you have a question, shoot him an email at asksean@nerdwallet.com. The answer might show up in a future column.