For a young adult below 18 years, it’s not easy to get a credit card. This is because credit card issuers are obligated to verify an applicant’s source of income. Being that most people in that age bracket do not have a stable source of income, they can hardly get approved for a credit card. If you want your child to get access to your credit, you need to consider making the child an authorized user.
This simply means your child can carry out transactions with your card while you make the payments. The child is under no obligation to make payments and if you default, both your credit scores will be affected. If you make your child an authorized user on your credit card, it will help that child to learn good credit habits. But before you make this decision, you need to check your child’s readiness.
Is Your Child Ready to Be an Authorized User?
To ascertain your child’s readiness to be an authorized user on your credit card, you need to check your child’s spending. Is your child responsible with money and do you think you can trust the child with this huge responsibility? You can start by setting guidelines. Consequences should also be set by the side should any of these guidelines be broken. You need to educate them on credit limits and the importance of staying within the limit. They might also need to take permission from you before carrying out certain transactions.
Which Account Should You Use?
It may be better to open a separate account or to add your child to a credit card that you seldom use. That way, your transactions are not mixed together and you can allow your child access to the online account without the concern of them viewing your transactions. Or, if you share a credit card with your child, make sure you leave a buffer of available credit so your child’s purchases don’t push the balance over the credit limit.
If you decide to add your child to one of your existing credit cards, choose one that has a good credit history. With some credit cards, the entire account history appears on the authorized user’s credit report once they’re added to the account. It would be counterproductive to add them to an account that’s riddled with late payments and other negative items. These would be added to your child’s credit report and hurt rather than help.
Primary and Authorized User Card Responsibilities
Once added to the account, your authorized user will receive a separate credit card in his or her name. Some credit card issuers even issue different account numbers for authorized users. Even with their own card, the authorized user is simply allowed to make purchases on the account. They typically can’t make any other transactions – cash advances or balance transfers. They also can’t make changes to the account, e.g. close the account, request a credit limit increase, or add users to the accounts.
Keep in mind that you’re responsible for all charges made on your card, even those made by an authorized user, and even if the authorized user has verbally agreed to pay for their charges. As the primary account holder, the credit card issuer generally holds you responsible for the credit card balance.
Will It Boost Their Credit Score?
Yes, you will boost your child’s credit score as an authorized user. This will help them qualify for credits when they are ready. Credit score boosts for authorized user accounts were almost eliminated when FICO decided they would no longer include authorized user accounts in their credit scoring model. The decision was based on the number of people who’d exploited the loophole by purchasing access to authorized user accounts. Eliminating authorized user accounts would have hurt millions of consumers, so FICO instead tweaked their most recent credit score model – FICO 08 – to only include legitimate authorized user accounts.
The VantageScore 3.0 also considers authorized user accounts when calculating a score.
Ending the Authorized User Agreement
When you decide the end the authorized user agreement, all you need to do is to call your card issuer. The process is very simple.