Should you make your child an authorized user on your credit card? It depends on a few things.
By setting up an authorized user relationship, your child has the opportunity to start building a positive credit history even if they are still too young to open a credit card of their own. Plus, teaching your children how to use credit responsibly can help them build the kind of good financial habits that could last a lifetime.
Laura Spencer, an educator and design thinker who is currently a Designer-in-Residence at UCSD’s Design Lab, made both of her daughters authorized users on her credit cards. “My oldest daughter is almost 24, and just purchased her first home,” says Spencer. “This is because she learned how to handle money responsibly and had established good credit. I think the credit card definitely helped her credit score.”
However, not all parents think that making their children authorized users is a good idea. Financial adviser Joyce Rojas decided that she would help her son build his own credit from scratch.
“What we did instead of adding him as an authorized user is had him save $300 of his own and apply for a secured card,” Rojas explains. “Six months later, that same credit card sent his $300 back and offered him $1,500 a credit line. He built his own credit by himself! This taught him that he can create his own financial freedom.”
What happens when you make your child an authorized user?
When you make your child an authorized user on your credit card, your child is able to make purchases on your existing line of credit. Your child will receive a unique credit card that is linked to your account. This card can be used to make purchases in person and online, and all of the charges made on the card will appear on your monthly credit card statement.
You are responsible for paying all charges made on your account—even the charges made by your child—and most credit cards allow parents to set spending limits to ensure that their child doesn’t accidentally charge more than the household can afford.
“I decided not to have the credit card company put a limit on the account because I wanted it available in case of an emergency,” Spencer told us. “For example, if their car broke down far from home, I didn’t want the card declined because the repairs were over a certain dollar amount. Since my credit card app shows me how much is spent per user, it worked out fine.”
Can making your child an authorized user build their credit?
One of the biggest benefits of making your child an …….