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Financial experts say parents who want to help improve their children’s credit scores and credit histories can take a fairly simple step: Add your child as an authorized user on a credit card account.
The goal is for the child to establish credit from a relatively early age through the good credit of the parent (i.e., the primary account holder).
Ted Rossman, senior industry analyst at CreditCards.com, said the strategy typically works best for kids in their late teens, perhaps around 16 or even in their early 20s.
Parents can think of it as a “stepping stone” to building credit, he said.
“It’s becoming increasingly difficult to build credit in your own name, and this is one of the tools to solve that problem,” Rothman said. “That’s really helpful.”
Allowing children to use credit cards and showing them how to pay off debt responsibly can also “help them learn healthy credit card management skills early on,” said Andrea Woroch, a consumer finance expert.
Why building credit is important
Things to consider
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Experts say parents should only try this authorized user strategy if they have good credit.
“As long as you pay your bills on time and don’t have a large balance each month, your children will benefit from your good credit history and credit score, helping them establish and build credit,” Woloch says.
Ideally, they should also consider an end date.
Depending on the circumstances, it could last one to three years, Rothman explained.
Importantly, this is not a joint account. Legally, he said, the primary account holder is responsible for all authorized user transactions, which means parents are in trouble if their children misuse their credit cards, perhaps by exceeding their monthly limit or failing to pay their bills on time.
Experts say parents can set spending limits for authorized users based on their credit card provider.
They say that means setting a relatively low credit limit, perhaps just enough for a teen to fill up his car’s gas tank or watch a few movies a month.
Parents don’t even have to hand the card to their child at all.
“The credit benefits actually show up whether they use the card or not,” Rothman said.
Ultimately, Woloch said, parents should make sure they “set clear rules and boundaries about if and how the card will be used.”
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