Adding your kid to your credit card can be a shortcut to helping them establish their own credit history, which is hugely important for their financial future. But as much as you may want to give your progeny a boost, it is also natural to have mixed feelings about handing over a credit card with your name on it.
So, should you do it? The first step in making this decision is understanding how authorized user arrangements for credit cards work. From there, you will want to weigh the pros and cons and consider the specifics of your situation to decide what the right call is.
How can adding your kid as an authorized user help them?
You can add your child to your credit card account by making them an authorized user. While they may get a card with their name on it, you — the primary user — remain legally responsible for any charges. This arrangement can "help establish their credit history," as "once they're added to the account (or once they turn 18, depending on the card issuer), the account's entire history will be added to their credit reports," said Experian. This will allow your offspring to continue building credit on their own more easily.
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While building credit is perhaps the main motivator for allowing your kid to become an authorized user, the set-up can have other benefits as well. If "your child is old enough to begin to understand credit cards and budgeting," then this could be a "financial literacy lesson for them," said Bankrate. Your child's usage could also contribute to your own credit card rewards, and they would have funds handy in case of an emergency.
What are the risks of adding your child to your credit card?
One notable downside of adding your kid to your credit card: They could end up hurting your credit. If they are making charges, "you are responsible for a potentially larger bill, and with a larger bill comes a higher credit utilization ratio," said U.S. News & World Report. There is also the possibility that they run up a balance — and you will be responsible for paying that off as the primary user.
On the flip side, it is also possible that you could end up hurting their credit. Being an authorized user can only help build credit "as long as you [the primary user] keep the account balance relatively low and pay your bill on time every month," said Experian.
What should you consider before making your child an authorized user?
One of the first things to consider is your card issuer's policies, as some have a minimum age requirement for authorized users and others charge a fee for adding one. It is also worth confirming whether or not they will report your child's credit history, given that the "financial institutions that issue credit cards have different policies on how and when they report an authorized user's activity," said The Wall Street Journal.
This is the time to get real about your own credit and whether your habits are likely to help your child. It is equally important to determine whether your child is really ready for this financial responsibility — and how you will keep tabs on them along the way.
