Kids and Money: Boost Your Child's Future Credit Score

An authorized user is a secondary account holder on a credit card, which means the user has access to an existing credit card account but ultimately isn’t responsible for making payments. Although someone can become an authorized user of a sibling’s or even a friend’s account, the most common arrangement is between a parent and a child. The arrangement benefits young adults who may not qualify for credit on their own because they have little or no credit history and limited income. Although most credit card companies won’t issue a card to someone who is younger than 18, a child who is younger than that can be an authorized user.

Even though the card isn’t in your child’s name, your child can start to build credit. But if you miss payments on your credit card, that negative information could affect your child’s credit report.

As long as you handle your credit responsibly, naming a child as an authorized user can help them establish a good credit record and learn how to use credit responsibly. Consider letting your child use it occasionally to pay for gas or food or other small expenses to gain an understanding of what it’s like to use a credit card, says Ted Rossman, analyst at CreditCards.com.

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You may also want to set spending limits for college-age children who are living away from home. You should be clear about how the card can be used—for textbooks, for example, but not for entertainment. Once your child is working and has established a credit history of their own, encourage them to apply for their own credit card, says Rossman.

The risks to you. Keep a close eye on your child’s purchases, because you’re legally liable for their spending. “It’s really im­portant that you talk about that with your kid when you’re adding them as an authorized user,” says Matt Schulz, chief industry analyst at CompareCards.com. Bear in mind, too, that your child’s credit card charges can hurt your credit score even if you pay off the balance every month. One of the components of your credit score is the credit-utilization ratio, which is a ratio of debt you have relative to the amount of credit you have available. The general rule of thumb is to try to keep the ratio below 30%; below 10% is even better, Rossman says.

A good credit report is valuable for a young person who is starting out, and not just because it will make it easier for them to get their own credit card or a car loan. Even non-credit-related ventures often require a healthy credit record. For example, landlords may want to check your child’s credit record when they apply to rent an apartment, as will utility companies and some cell-phone companies. And good credit is especially important for young people now. Nearly one-third of millennials age 24 to 29 were denied a financial product because of a low credit score in 2020, according to Bankrate.com. Making your child an authorized user may just be the leg up they need down the line.