Believe it or not, your kids can get a credit card even if they aren’t over 18. By adding them as an authorized user, your kids can start building credit from an early age.
But how young is too young for your kids to get a card?
The answer is simple: There is no such thing as “too young.” If you’re concerned about handing over a credit card to your child, then keep the card in your possession. Your kids don’t have to use the card to piggyback on your credit.
How Does Being an Authorized User Work
Being an authorized user on a credit card means giving your child permission to use your credit card account. Authorized users can make purchases and use the credit card just like the primary cardholder, but they are not legally responsible for the debt incurred on the card.
Here's how it works:
Permission and agreement: The primary cardholder contacts their credit card issuer and requests to add another person as an authorized user on their account. They may need to provide their personal information, such as their name and date of birth. They might also be required to agree to the terms and conditions of the credit card issuer.
Issuance of an authorized user card: Once added as an authorized user, the credit card issuer will typically provide them with a separate credit card linked to the primary cardholder's account. This card will have their name but will be tied to the primary account.
Usage and responsibility: As an authorized user, they can use the credit card to make purchases, just like the primary cardholder. You have the same spending power, credit limit, and access to any rewards or benefits associated with the card. However, remember that they are not legally responsible for the debt incurred on the card. The primary cardholder remains responsible for making timely payments and managing the account.
Credit reporting: Some credit card issuers report the authorized user's activity to credit bureaus, while others do not. If the issuer reports authorized user activity, it can impact their credit history, depending on how the account is managed. Positive usage can help build their credit history, but negative activity, such as late payments or high balances, can also harm their credit.
Control and monitoring: The primary cardholder has full control over the credit card account, including the ability to set spending limits, track transactions, and make changes to the account. As an authorized user, they should keep you informed regarding any charges they make to monitor the account effectively.
It's important to establish clear communication and trust between you and your child when adding them as an authorized credit card user.
For instance, establish a few ground rules, such as:
- What can and can't be bought using the card?
- Will they make payments to you or to the bank?
- How much are they allowed to spend each month?
- Do they need to ask you before making a purchase?
- Which stores can they use the credit card at? Is online okay?
- What are the consequences if they overspend or break the rules?
Many credit card companies have no minimum age for authorized users. This means you could, technically, add your newborn child as an authorized user and start building their credit immediately. By the time they are 18, they will have almost two decades of credit history.
Credit Cards for Kids: Good Idea?
Though I believe giving credit cards for kids is a good idea to help your kids build credit, there are downsides to giving them a credit card at such a young age.
First and foremost, it can lead to uncontrolled spending. By granting your child access to your credit card, you run the risk of them making impulsive purchases or overspending without fully understanding the consequences. This can result in accumulating debt and potentially damaging their credit history even before becoming financially independent.
Another drawback is the potential strain on your own finances.
When you add your child as an authorized user, you become responsible for any charges they make on the card. If they use the card irresponsibly or exceed the credit limit, it could negatively impact your credit score and put you in a difficult financial situation.
Moreover, it may become challenging to track and manage expenses (though financial automation can help), as you must distinguish between your purchases and those made by your child. This lack of clarity can lead to confusion and make it harder to stay within your budget. Ultimately, adding your child as an authorized user on your credit card can create unnecessary financial risks and hamper your own financial stability.
In conclusion, adding your child as an authorized user on your credit card can be a beneficial strategy for helping them build credit. By giving them access to responsible credit usage and payment practices, you are instilling valuable financial skills that will serve them well in the future.
Additionally, this method allows them to establish a credit history early on, increasing their chances of obtaining favorable terms for loans and credit in adulthood.
While monitoring their spending and educating them about responsible credit management is important, this approach can be a powerful tool in setting them up for financial success and independence.
By offering this opportunity to your child, you are helping them build credit, fostering their financial literacy, and empowering them to make informed decisions as they navigate the financial world.
Steve Adcock is an early retiree who writes about mental toughness, financial independence and how to get the most out of your life and career. As a regular contributor to The Ladders, CBS MarketWatch and CNBC, Adcock maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level-up their lives, careers, and freedom. Adcock's main areas of coverage include money, personal finance, lifestyle, and digital nomad advice. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at SteveAdcock.us.