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Money experts say parents who want to revitalize their child’s credit score and credit history can take one very simple step. What you do is add your child as an authorized user to your credit card account.
The goal is to piggyback on the good credit of the parent, or primary account holder, and allow the child to build credit from a relatively young age.
Ted Rothman, senior industry analyst at CreditCards.com, says this strategy is generally best for kids in their late teens, perhaps around 16, and even in their early 20s.
Parents can think of it as a “stepping stone” to building trust, he says.
“It’s becoming increasingly difficult to establish credibility in your own name, and this is one of the tools to get around that,” Rothman said. “It’s really, really helpful.”
Consumer finance expert Andrea Wollock says that allowing children to use credit cards and teaching them how to responsibly pay off debt is “developing healthy credit card management skills in children early on.” It is also useful for learning.”
Why is building trust important?
Things to consider
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Experts say parents should only try this allowed user strategy if they themselves have sufficient trust.
“As long as you pay your bills on time and don’t leave large balances each month, your children will benefit from your good credit history and credit score, which will help them establish and build credit,” Wallock says. said.
You should also ideally have an end date in mind.
Depending on the situation, it will probably take one to three years, Rothman explained.
Importantly, this is not a joint account. Legally, the primary account holder is responsible for all transactions of authorized users. That means parents are at risk if their child misuses their credit card, perhaps by overspending, or if they don’t pay the bill in full and on time, he said.
Depending on the card provider, parents can set spending limits for authorized users, experts say.
That means taking out a relatively low line of credit, perhaps enough for a teenager to fill up the car with gas or go to the movies a few times a month, they said.
Parents don’t even have to give their child a card.
“Credit benefits are tied to whether or not you actually use the card,” Rothman says.
Ultimately, Wollock said, parents need to “set clear rules and boundaries about whether and how the cards can be used.”
