Images by Tang Ming Tung | Digital vision | Getty Images
Parents who want to help boost their child’s credit score and credit history can take a fairly simple step, money experts say: add your child as an authorized user to your credit card account.
The goal is to help a child build credit from a relatively young age by piggybacking on the good credit of their parents (i.e. the primary account holder).
The strategy is generally best for children in their later teens, perhaps around 16 years old, or even in their early twenties, says Ted Rossman, a senior industry analyst at CreditCards.com.
Parents can see it as a “stepping stone” to building credit, he said.
“It has become more difficult to establish credit in one’s own name, and this is one of the tools to get around that,” Rossman said. “It can really help a lot.”
Allowing children to use a credit card — and showing them how to pay off debt responsibly — can also help them learn healthy credit card management skills early on, says Andrea Woroch, a consumer finance expert.
Why building credit is important
Things to consider
Mihailomilovanovic | E+ | Getty Images
Parents should only try this authorized user strategy if they have a good reputation themselves, experts say.
“As long as you pay your bill on time and don’t carry a hefty balance each month, your child will benefit from your positive credit history and credit score, which will help him or her build and build credit,” Woroch said.
Ideally, they should also have an end date in mind.
Perhaps for one to three years, depending on the circumstances, Rossman explained.
It is important that this is not a joint account. Legally, the primary account holder is responsible for all of the authorized user’s transactions – meaning a parent will be blamed if their child misuses a credit card, perhaps by overspending or not paying the bill on time and in full each month , he said.
Parents can set spending limits for authorized users depending on their card provider, experts said.
That means setting up a relatively low amount of credit, perhaps just enough to let the teen fill up the gas tank or go to the movies a few times a month, they said.
Parents do not have to give the card to their children at all.
“The credit benefits actually translate to whether they use the card or not,” Rossman said.
Ultimately, parents need to make sure they “set clear rules and boundaries about if and how they can use the card,” Woroch said.