As you Teach your children about money, An important concept is how to use credit responsibly. Adding your children as authorized users on your credit card is one way to help teach sound Debt management Skills, and it can give his credit score a head start.
Read on to find out the best time to add your child as an authorized user on your credit card account. You will also find out why this credit-building strategy can be so effective.
What is an authorized user?
An authorized user is someone you add to a credit card account that is issued in your name. You allow the authorized user to charge your account, but that person is not responsible for the loan. The liability lies with you, the primary cardholder.
You can usually request to add an authorized user online or by calling your credit card issuer.
If your account is open and in good standing, the bank will issue another credit card with the name of the authorized user. It is up to you whether you actually change the card to charge your authorized user or remove it for safekeeping.
Do Authorized Users Produce Credit?
Adding an authorized user to a credit card can affect your credit and the credit of the person connecting to your account. The actual impact will be based on how the credit card is managed.
When you add your child or someone else to your existing credit card, it can help that person Create credit.
“With good payment behavior and responsible usage, adding authorized users can have a positive impact on an authorized user’s credit score,” says Monica Bowder, senior director of digital participation and cardholder access at Capital One.
To create a positive credit history for a credit card, see these factors:
- Your account payment history should be impeccable.
- Leaves Credit utilization ratio Should be less.
- Ideally, the account would be at least a few years old.
Why is payment history so important? This is the number 1 factor affecting your credit score – how much credit you use after that. The length of the credit history is not impressive, but it is still helpful.
“If you’re responsible with (your credit card), it’s very helpful to start jumping (your child’s credit) in the event you start giving credit to your child,” says Shanta Nicole Harris, Financial Teacher and Director of Credit Is a consultant with Financial Common Cents.
It is worth noting that most, but not all, card issuers report authorized user accounts for three credit reporting agencies: Equifax, TransUnion, and Experian. If the card issuer does not report the account to the credit bureau, it will not help your child’s score at all.
Can an authorized user affect your credit?
Adding your child as an authorized user can have a downside: you are responsible for a potentially large bill, and with a larger bill comes a higher credit utilization ratio.
The action of adding your child to your existing credit card account will not have any effect on your credit score. Nothing on your credit report indicates that your credit card is used by authorized users or just the primary account holder.
If your child charges the account, your credit may still be affected. You will be responsible for paying those charges – although of course you can make an agreement with your child to pay them. You should plan to pay your entire credit card balance each month, including your authorized user’s charges. But if your authorized user runs your bill, you may not be able to pay the full amount and the balance needs to be carried. This will drag your credit score down. Your credit utilization ratio will increase even more, as you and your children are charging more overall. It also loses your credit score.
Do you have to give credit cards to your children?
By adding your children as authorized users and giving them access to charge fees you can provide training-wheels credit experiences, you are not actually allowed to make them a fee. Whether or not they use the card, your positive (and negative) account history will reflect on their credit.
Some parents choose to add a child as an authorized user for credit-making reasons alone. In that case, the parents hold the physical card, not the child.
If you give your children a card to use on their account, it is a good idea to expect how much they can charge in the account and how they plan to repay it.
You may be able to set boundaries. Some card issuers allow you to set spending limits on authorized user cards. Capital One, Bauer explains, allows the primary account holder to lock and unlock an authorized user’s card at any time.
Remember, when you add an authorized user, you agree to be responsible for all charges that the person incurs on your account. you could not to blame You did not approve if your authorized user made a purchase.
When Should You Give Children Credit Cards?
There is no such thing as the right age to become an authorized user. Ultimately, this boils down to responsibility and whether your child needs access to credit soon.
When you are deciding the best age to add your child to your credit card as an authorized user, here are some questions:
- Do you want to give charging privileges to your child?
- Can you trust your child to follow the rules?
- Does your child plan to apply for their own loan soon?
Generally, high school is a good age. This is a time when your children may need to use a credit card for purchases, and they must be mature enough so that they can take lessons in credit. Having a credit history can help once you hit college age and get your own student credit card
Some credit card issuers have restrictions on the age of authorized users. American Express, for example, requires you to be 13 years old before children are included in your credit card as authorized users. Other card issuers, such as Capital One, leave the age of authorized users to the discretion of the primary cardholder.
Other benefits of adding authorized users
Promoting your children’s credit history is not the only possible benefit Add them as authorized users. You can earn more rewards and make it easier for your family to receive money.
Award. If you add an authorized user to a rewards card and are giving privileges to that person, those purchases can help you achieve a higher prize money. “Beneficially, the primary account holder earns a reward (if on a rewards card) for the purchase of its authorized user,” says Bauder.
Simplified Domestic Finance. A shared credit card, where you can view all transactions in one billing statement, can be handy for tracking expenses in a separate bank account or giving your child an allowance that is not tracked. Seeing your child’s charges gives you a chance to talk about the budget and how he spends the money.
peace of mind. Knowing that your child has access to money in an emergency can easily set you up as a parent. Just be sure to discuss any spending guidelines in advance. You should also feel that your child is trustworthy and will follow the rules.
What happens after adding your children as an authorized user?
Adding your children as authorized users can help them, but this is just one stop on their journey to establish good credit. This is not the ultimate goal.
Although a positive authorized user account can help your child’s credit score, it may not be enough when it is time to apply for some loans. “When you don’t have your credit established,” Harris says, “it can still negatively affect you in the eyes of the lender.”
“Don’t drive a bus based on someone’s credit who has good credit,” says Harris. Children need to start working on their behalf.
Some parents choose to have their children removed as authorized users when they establish some of their own credits. But keep in mind, Deleting Authorized Users They can reduce their credit score because your report will no longer have the payment history and credit age of your account. As an alternative, you might want to stop charging your children, but hold them to account as authorized users for credit-building purposes.
Make sure you trust your child if you decide to go this route. If you are concerned that your child may continue shopping without permission, it is probably best to call your card issuer and cut the cord.