Building credit history: Adding your kids as authorized users to your credit cards
Editor’s note: This post has been updated with the latest credit card information.
In this day and age, having an established credit history and a good credit score is an important part of being financially independent. As parents start to teach kids about responsible money management, credit cards should be part of that conversation. But how can you give your children a leg up on building a credit history while teaching a lesson in financial responsibility? It might be as easy as adding them to your credit card account as authorized users.
An authorized user on a credit card is basically someone who has your credit card — but with their name on it. You, as the primary cardholder, are responsible for all of their charges. In other words, the authorized user gets to swipe, but you have the ultimate responsibility to pay.
While that may not sound ideal for some parents, there may be benefits for both you and your children. For parents, adding an authorized user to your credit card account sometimes comes with extra perks (bonus points on a welcome offer, statement credits, additional lounge access or other card benefits). In addition to benefits for yourself, there are also some long-lasting benefits for your kids.
Advantages of adding kids as authorized users
Adding a child as an authorized user on your credit card can help those with limited or no credit history start building a credit file. This allows them to get better credit offers (loans, mortgages, car leases and more) once they are older. When you add a child as an authorized user, it reports as a new account on your child's credit report and the account history and details will impact their report.
So if you are a responsible credit card user with a strong payment history and low credit utilization rate, that will help your child's credit score. TPG contributor Ethan Steinberg started his credit cards journey as an authorized user on his father's United Explorer Card.
Having a card in their own name also helps them learn to manage expenses while still under your protection, establishing healthy financial habits early.
Of course, there are also benefits for you. Every dollar your authorized user spends gives you the same miles and points as if you were the one doing the spending. Some banks allow authorized users to spend the points, too. For example, Chase Ultimate Rewards points can be transferred into the loyalty accounts of one authorized user who is a household member (this may be a handy way to top off a child's airline account to reach an award redemption). However, you are limited to one person who meets that criteria, so don't use the functionality for a child if you'd prefer to transfer those points to a spouse.
Related: Guide to family points pooling
Age requirements for authorized users
There is no overarching legal age requirement for adding someone as an authorized user. But card issuers do have different rules, policies and processes for adding minors to card accounts. In the chart below, we outline different bank policies for adding authorized users. Most banks make it easy to add an authorized user online while logged into your account or by calling the number on the back of your card.
|Card issuer||Minimum age||Reports to credit bureau?|
|Bank of America||None||Yes|
The above table is for personal credit cards. Small-business cards typically have their own rules. Some banks ask for the authorized users' Social Security Number (SSN), but they do not pull credit reports on the authorized user, since the primary cardholder is the one who is responsible for making payments.
When it's time for your children to open a credit card account in their own names, they can do so even if they are authorized users on your account for the same type of card. However, do know that authorized user accounts can impact the way Chase views 5/24 status -- although if you have a conversation with Chase, it will usually manually discount that card from the 5/24 total.
Things to consider before adding a child as an authorized user
There are a few reasons why you might not want to add your children as authorized users on your credit cards.
Remember that charges made by authorized users are ultimately your responsibility as the primary cardholder. Make sure that your kids are mature enough to understand the cause and effect of swiping or entering a card number for every purchase. You can add your child as an authorized user and not actually share the card with them if you think they are not ready for the responsibility. You also may be able to set monthly spending limits for your authorized user — American Express makes this simple under the card management section of your online account.
Keep in mind that some cards charge an annual fee for adding authorized users (that can be hefty with premium cards), so if you're only using this to teach your kids about credit or to help them build a credit history, use a card that doesn't charge fees for additional users.
If you supply information about your kids as part of the authorized-user application (some banks require this), then it will almost certainly go onto their credit report. However, it might end up there even if you don't provide a Social Security Number based on other identifying information.
This is good news if you want to help them build a credit history, but the account will show up on their report and as mentioned, it will count toward their initial Chase 5/24 status, which is something to note as they approach 18. However, you can ask Chase not to count authorized user cards toward 5/24 in reconsideration, so it's just something to be aware of. Depending on how old your children are, this may not be an issue at all.
Remember that if you incur negative marks on your credit accounts, it may affect your authorized users too. If you run into financial trouble, you should remove your children as authorized users to protect their credit histories.
There's no standard time or age where you should add children as authorized users on your credit cards, but it's important to weigh the pros and cons to see if your child is ready and could benefit from it. By adding your kids as authorized users to your credit cards (depending on their age and the issuing bank), they will thank you when they're older and have an easier time applying for their own card when the time comes.
Additional reporting by Benét J. Wilson.
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