Parents looking to give their kids a leg up on their credit score can consider one simple tactic: adding them as authorized users on their credit card accounts. Financial experts recommend this approach as an easy way for young people to build a credit history early by leveraging their parents’ responsible credit habits.
This method is particularly beneficial for teenagers around 16 years old or those in their early twenties, according to Ted Rossman, a senior industry analyst at CreditCards.com. “It’s a stepping stone to building credit,” Rossman said. “These days, it’s more challenging to establish credit independently, and this method can really make a difference.”
Allowing children access to a credit card while teaching them to responsibly manage debt can instill important financial skills. Andrea Woroch, a consumer finance expert, notes that this practice can promote healthy credit habits early on.
Before trying this strategy, experts suggest parents should have a solid credit profile themselves. “By paying your bills on time and avoiding heavy monthly balances, your child can benefit from your positive credit history,” Woroch emphasized.
Parents should also have a plan regarding the timeframe their child will remain an authorized user—Rossman suggests one to three years, depending on individual circumstances. It’s crucial to understand that this won’t make it a joint account. The primary account holder remains liable for any debt incurred by the authorized user, meaning parents are financially responsible if their child overspends or misses payments.
Additionally, many credit card companies allow parents to set spending limits for authorized users. Experts suggest allocating a modest amount, enough for minor expenses like filling up on gas or going to the movies.
Interestingly, parents don’t even need to hand over the card for their children to gain credit benefits. “The credit history benefits apply even if the card isn’t used,” Rossman pointed out.
In the end, establishing clear rules and boundaries is key, says Woroch. Parents should ensure their kids understand the expectations and limits regarding card usage to successfully navigate this credit-building strategy.
