Parents who want to help jumpstart their kid’s credit score and credit history can take one fairly easy step, money experts say: Add your child as an authorized user to your credit card account.
The goal is to have a child build credit from a relatively early age by piggybacking off their parent’s — i.e., the primary account holder’s — good credit.
The strategy is generally best for kids in their later teenage years, maybe around 16 years old, or even those in their early 20s, said Ted Rossman, a senior industry analyst at CreditCards.com.
Parents can think of it as a “stepping stone” to building credit, he said.
“It’s gotten harder to establish credit in your own name, and this is one of the tools to get around that,” said Rossman. “It can really help a lot.”
Allowing kids to use a credit card — and showing them how to pay off the 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
Credit scores range from 300 to 850. Lenders typically consider the best ones to be in the low 700s and higher.
Many factors determine one’s credit score, like bill-paying history and how long someone has had an account open.
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Securing good credit early in one’s career can yield many financial benefits, like helping to qualify for a loan or line of credit, and getting a lower interest rate on that debt.
Landlords, utility providers, cell phone companies and prospective employers, for example, also generally run credit checks when vetting applications.
Things to consider
Parents should only try this authorized user strategy if they themselves have good credit, experts said.
“As long as you pay your bill on time and don’t carry a hefty balance each month, your child will benefit from your positive credit history and credit score, helping them to establish and build credit,” Woroch said.
They should also ideally have an end date in mind.
Perhaps for one to three years, depending on the circumstances, Rossman explained.
Importantly, this would not be a joint account. Legally, the primary accountholder is responsible for all the authorized user’s transactions — meaning a parent is on the hook if their kid misuses a credit card, perhaps by overspending or failing to pay their bill on time and in full each month, he said.
Parents can set spending limits for authorized users, depending on their card provider, experts said.
That means setting a relatively low credit allowance, maybe just enough for the teen to fill up their car’s gasoline tank or go to the movies a few times each month, they said.
Parents don’t even have to give the card to their kids at all.
“The credit benefits actually translate whether they use the card or not,” Rossman said.
Ultimately, parents should make sure they “set clear rules and boundaries as to if and how they can use the card,” Woroch said.