Things to Know

Should you give your kid a credit card? While your immediate response to this question is probably a resounding "No," this answer is really only half correct. While signing your kid up for their own credit card is probably a bad idea, adding them as an authorized user on one of your accounts can have many long-lasting benefits.

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One major problem that many young adults face is a lack of established credit. It is difficult to get approved for a credit card or auto loan without a solid credit history, but you can't build a credit history without first being approved for a credit card or other loan. By adding your child as an authorized user on one of your accounts, you can let them reap the benefits of a good payment history while still minimizing their risks.

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When you add them as an authorized user, all of the on-time credit card payments on your account will also appear on your child’s credit report. In many cases, this can date back to the time the card was opened, drastically increasing your child’s "average age of accounts." This is one of the main factors affecting your credit score, so having an older account on your credit report can help to balance out any newer accounts.

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As an authorized user, they will be issued an additional card in their name. With this card, they will be able to make purchases, but they will not be able to request a cash advance or balance transfer. It is important to note that as the primary account holder, you are legally responsible for all of the charges made on your account, whether you made these purchases yourself or your authorized user did. Because of this, it is important to set boundaries when you add your child as an authorized user.

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First, you will need to decide if your child will be allowed to make purchases with the card. They can still reap the benefits of being an authorized user even if they never swipe the card, so in many cases, it might be best to leave the card in a drawer at home.

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If your authorized user will be using the card, it is important to lay out the limits ahead of time. Decide upfront on how much money your child will be allowed to spend using the credit card. Are they only allowed to use it to put gas in their car? Up to $200 per month? Some other amount?

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You will also need to decide who is responsible for paying these charges. Will they be paying you back each week? Each month? Will you be paying for the charges as a sort of allowance for your kid? Remember that legally, you are responsible for all charges regardless of your verbal agreement with your child. If your kid is not always the most responsible spender, you might want to reconsider giving them a credit card. But having said that, if your kid is responsible, it might be a good idea to add them as an authorized user in order to boost their credit score and give them a head start before they enter adulthood.

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