Looking to establish credit history for your children? Add them as authorized users

Having a solid credit history and a strong credit score is crucial for achieving financial independence. Teaching your kids about responsible money management should include discussions about credit cards. A simple way to help them build credit history while learning about credit cards is by adding them as authorized users.

An authorized user on a credit card is someone who possesses a card with their name linked to your account. As the primary account holder, you are accountable for their charges and for settling the bill. Essentially, the authorized user can make purchases, but you handle the payment.

Allowing your children to use a credit card might seem risky, but it can provide advantages for both you and them. For parents and guardians, adding an authorized user to your credit card account may come with added perks (like bonus points from welcome offers, statement credits, extra lounge access, or other card benefits). Beyond benefits for you, your kids can enjoy long-lasting advantages. Here’s a deeper look.

Benefits of adding children as authorized users

By adding your child as an authorized user on your credit card, you can help them start building a credit profile or mitigate any negative credit history they might have. This strategy can lead to better credit offers (such as loans, mortgages, and car leases) and lower interest rates in the future.

When a child is added as an authorized user, it appears as a new account on their credit report, impacting their overall credit profile with its history and details.

However, this relationship works both ways. Positive credit card usage and timely payments can enhance your child's credit report, while poor habits, like a high utilization ratio, can negatively affect it.

Having a card in their own name allows your children to learn how to manage their expenses under your guidance, fostering healthy financial habits from a young age.

There are also perks for you. Every dollar spent by your authorized user accrues the same points and miles as if you were spending them yourself. Some banks even let authorized users redeem these points. For instance, Chase Ultimate Rewards points can be transferred to the loyalty accounts of one authorized user who lives in the same household, which can be useful for boosting a child's airline account to achieve an award redemption. Just note, you can only transfer points to one person, so consider this before choosing a child over a spouse.

Minimum age requirements for authorized users

There is no universal legal age limit for adding an authorized user to your credit card, meaning that individual banks can set their own guidelines for adding minors. Most banks make it straightforward to add an authorized user either through your online account or by calling customer service. Here’s a breakdown of different bank policies:

This information pertains to personal credit cards. Small business cards often have different rules. Some banks may require the authorized user’s Social Security Number (SSN) but typically do not check their credit reports, as the primary cardholder is responsible for payments.

Considerations before designating a child as an authorized user

There are several factors to keep in mind before adding your children as authorized users on your credit cards.

Firstly, you'll bear responsibility for all purchases made by authorized users. Make sure your kids are mature enough to grasp the implications of using a card for each transaction. If you feel your child isn't quite ready for that level of responsibility, you can still add them as authorized users without actually giving them the card. Additionally, some issuers allow you to set spending limits for authorized users.

Furthermore, some credit cards impose an annual fee for adding authorized users (which can be significant with premium cards). If your goal is to educate your children about credit or help them establish a credit history, opt for a card that does not charge fees for extra users.

Lastly, while most credit cards report the activities of authorized users to credit bureaus, this can be more complicated when the authorized user is a minor. Not all banks have the same policies regarding the age of authorized users or follow consistent reporting rules for minors. If your aim is to assist your child in building a credit history, make sure you understand when (or if) this information will be reported to the credit bureaus.

When your children are ready to open a credit card in their names, they can do so even if they are authorized users on your account for the same card type. Keep in mind that being an authorized user can impact how Chase assesses 5/24 status. However, if you contact Chase, they can often manually exclude that card from your 5/24 total.

Be aware that negative marks on your credit accounts can also affect your authorized users. If you face financial challenges, it’s best to remove your children as authorized users to protect their credit histories.

Options other than adding your children as authorized users

Adding your children as authorized users on your credit card is just one method to help them build credit history and learn about financial management.

You might also consider taking out a small loan, such as a credit-building loan, to assist your child in establishing credit history through timely payments. Just be aware that these loans can have high interest rates, so borrow only what you can comfortably repay.

Another possibility is a secured credit card. Only individuals aged 18 and older can be primary account holders on credit cards, including secured cards. This option helps prevent overspending while your child learns to manage a credit card. You could set up a secured card with your child as an authorized user before they turn 18 or assist them in getting their own secured card once they reach that age.

In summary

There isn't a specific age or timeframe for adding children as authorized users on your credit cards. It's crucial to evaluate the advantages and disadvantages to determine if your child is prepared and can gain from this experience. By including your kids as authorized users on your credit cards (depending on their age and the policies of the issuing bank), they can benefit from a positive credit history when they eventually apply for their own credit cards.