Adding Your Child to Your Credit Card: 7 Questions to Consider

Adding a child as an authorized user on a credit card can help establish their credit history. However, it's crucial to consider several factors before doing so, including the child's financial responsibility, the type of credit card to add them to, the potential impact on the parent's credit score, and the child's understanding of credit card usage and responsibility.

Adding a child as an authorized user on a credit card can be a strategic move to help establish their credit history, especially for college students with minimal borrowing history. However, it is essential to consider several factors before making this decision. This article explores the advantages and disadvantages of adding a child as an authorized user, drawing from insights provided by financial professionals and industry experts.

Understanding the Basics

Adding an authorized user to a credit card allows the child to have access to the card and its benefits, such as making purchases and building credit history. The primary cardholder remains responsible for all charges on the account, making it crucial to ensure the child understands and adheres to financial responsibilities [2].

Key Considerations

1. Timing and Age: The optimal age to add a child as an authorized user varies depending on the parent's goals. For instance, if the child is entering college, adding them as an authorized user can provide a safety net for small purchases. However, the child's spending habits and financial responsibility should also be considered [2].

2. Credit Score: The primary cardholder's credit score can impact the authorized user's credit score. Adding a child as an authorized user to a card with a good credit history can help establish a positive credit score early on [2].

3. Fees: Some credit cards charge an annual fee for adding authorized users. It is essential to check if the card offers perks that justify the fee [2].

4. Spending Responsibility: The primary cardholder is responsible for all charges on the account. Therefore, setting clear spending limits and monitoring the child's spending is crucial. Teaching the child about budgeting and responsible spending can be an added benefit [2].

5. Credit Reporting: Not all credit card issuers report authorized user activity to the three major credit bureaus (Experian, Equifax, and TransUnion) immediately. Some may wait until the child turns 18 or after a certain period. It is essential to check with the card issuer about their reporting policies [2].

6. Removing the Authorized User: After a few years, or once the child has established their credit history, some parents choose to remove the child as an authorized user. This decision depends on whether the child has demonstrated responsible spending and whether the parent wants to continue using the card for their purchases [2].

Building Credit Early

For college students, establishing credit early can offer long-term financial benefits. High credit scores can lead to better interest rates on loans and more favorable terms on credit cards. Additionally, a good credit history can influence decisions in other areas, such as housing, employment, and insurance [3].

Conclusion

Adding a child as an authorized user on a credit card can be a valuable tool for establishing their credit history, especially for college students. However, it is essential to weigh the pros and cons and consider factors such as the child's financial responsibility, the type of credit card, the potential impact on the parent's credit score, and the child's understanding of credit card usage and responsibility. By carefully evaluating these factors, parents can make an informed decision that benefits both the child's financial future and their own credit health.

References

[1] https://www.reddit.com/r/CreditCards/comments/1mg17s1/college_student_with_authorized_user_access/
[2] https://www.wsj.com/personal-finance/credit/child-authorized-credit-card-user-expectations-36b0fb17
[3] https://www.nerdwallet.com/article/credit-cards/credit-card-basics-high-school-students