When to Make a Child an Authorized Credit Card User?
You need a good credit rating to get a credit card, but you need a credit history to have a good credit history. This 22nd personal finance trick can be challenging for young people looking to start building their credit history and parents looking to build a solid financial foundation for their kids.
But while some card issuers will issue the card to someone as young as 10 or 11 years old, that doesn’t mean it’s right for your family.
What should parents do if they want to improve their child’s creditworthiness without harming family finances?
“There are two key questions to ask yourself if you plan to add a child as an authorized user,” said Rod Griffin, Experian’s director of public education. First, is your child ready? “Have they reached the maturity level to understand what credit is and what are the responsibilities?” Second, are you ready? “There is a level of responsibility for you,” Griffin warned, “and a level of risk associated with any authorized user.”
When someone is an authorized credit card user , they can make purchases but are not responsible for making payments; the main card holder keeps the balance on the hook. The main benefit of adding your child to your card, aside from teaching them healthy financial habits, is that it allows them to use the time you held the card. The longer you have had the card, the longer their credit history will be checked at three credit bureaus and the higher their score will be.
If you think your child is willing to use credit, it’s not enough to say, “Oh, by the way, we’ll give you a credit card,” when he leaves for college at 17 or 18, ”Griffin said. If you are adding a child to your credit card as an authorized user, you should be prepared to spend time with them to become familiar with the healthy use of credit and your family’s own policies.
“Sit down at the end of the month, go over the account statement for that card and teach them that if you make the minimum payment, it will take you decades to pay off this debt, and it will cost a lot of money,” Griffin recommended. …
Beth Kobliner, author of Make Your Child a Money Genius (Even If It Isn’t) and Get a Financial Life , agrees. “A poorly managed account will hit everyone’s creditworthiness. Make sure you have clear rules for using the card and emphasize that this is not permanent, ”she said.
If you want to avoid the risk of your child getting too used to your credit card, set a time limit for how long they will be an authorized user. Howard Dworkin, commercial director and chairman of Debt.com , helped his college kids research the best credit cards for students and encouraged them to apply for their own cards two years later with his own cards. The hardest part, he said, was getting them to switch to using their own cards instead of continuing to use his safety net.
There is a common misconception that you should make your child an Authorized User as early as possible to protect their identity . But that is no longer necessary, ”said Griffin. He said that in the past, parents made their child an authorized user to create a credit file for that child and then froze his credit for safety. But freezing someone’s loan is easier than ever, and it’s now a free service. “A parent can request that we create a credit file and freeze it for a minor, and we will do that for free,” Griffin said ofExperian ‘s policy. TransUnion allows parents and guardians to freeze loans for minors aged 15 and under. Equifax allows parents to do this for minors under 16; if you are 16 or 17 you can request it yourself.
“While the credit freeze prevents new credit from being opened in your name, it does not prevent someone from accessing your card information and hijacking your account,” Griffin warned. If you make your child an authorized user and then block their credit, they (and you) will still need to keep their card and account information secure.
“If you want to teach your kids about money, and they are teenagers or teenagers, use cash instead of credit,” said Kobliner. “It makes money real for the kids,” she said. “It also invites them to learn about trade-offs and choices. You have a final amount to spend, say $ 20, and once you spend it, it disappears. “