Why Adding a Child as an Authorized User Might Not Help Their Credit

As parents, we want the best for our children: health, happiness — and hardy credit. Having a strong credit profile can determine whether your kid gets approved for a loan or how much they’ll pay for car insurance when they’re grown. But establishing credit for someone with no credit history is challenging.

A common workaround is for parents to add their children as authorized users on their credit card accounts. It doesn't have the same credit-building power as being the primary user on an account, but it's one option. Credit checks aren’t required, and the user can quickly piggyback on the primary cardholder’s credit history.

However, this arrangement isn’t always the right move. First, learn about the potential limitations of adding your kid as an authorized user and alternative ways they can build credit.

How old do you have to be to build credit?

If you’re hoping to boost your child’s credit before they even learn to tell time, you could face roadblocks. For one, your kid may not qualify for authorized user status. While some card issuers don’t have age restrictions, others require a minimum age of 13 to become an authorized user on a credit card.

Even if you can add your child, the issuer may not report their account details to the credit bureaus.

Some issuers that allow kids as young as 13 to become authorized users only report credit information for those age 18 and older. It’s wise to ask your credit card company how authorized user arrangements work. Other issuers have no age limit.

Does adding a child to a credit card have risks?

Yes, says Bruce McClary, senior vice president of membership and communications at the National Foundation for Credit Counseling.

“Same as the primary account holder, it can affect your credit positively or negatively, depending on how the card is used,” McClary says.

Being an authorized user doesn’t guarantee improved credit. If you have a record of on-time payments and don’t use too much available credit, that can generate or help your kid’s credit score. But your credit and your child’s can suffer if either person uses the account unfavorably.

Ultimately, it’s up to the parent to keep the account in good standing.

“When you add someone as an authorized user, that's what they are. They're authorized to use the card but they are not legally bound to pay the bill. You are legally bound to pay the bill,” says Julie Beckham, an accredited financial counselor and financial educator in the Boston area.

You don’t need to give your kid the credit card. As long as the primary cardholder keeps their account open and active, the authorized user’s credit will share the effects. If you do give your child the card, set some ground rules. Talk about when it’s OK to use the card, how much they’re allowed to spend, and who will make the payments. Some credit card companies let you place spending limits for authorized users.

Removing your kid as an authorized user can undo damage to their credit if the arrangement goes wrong.

Will authorized user status be enough for lenders?

Maybe, but maybe not. Some lenders don't take authorized user accounts into consideration when reviewing credit applications or give them much weight.

“If you're a lender and you're looking at someone and you see the designation that they're an authorized user rather than the primary account holder, it's just telling you that this person did not have to go through a credit approval process to have access to that account,” McClary says.

Having an account in their own name puts your kid in a stronger position because it shows they’re equipped to manage payments. You can guide them toward opportunities in adulthood.

“There are credit-builder loans that are available. There are starter credit cards for young adult consumers, where the threshold for approval is a little bit lower. You can also look at options for secured credit cards that require no credit check, but they require a good faith deposit in order to open the account,” McClary says.

Co-signing your kid’s car or student loan can also help build their credit as they make on-time payments, but as with any authorized user relationship, make sure you understand the risks. You are responsible for paying if your child doesn’t

What are other ways to get a child credit-ready?

The best way to set your child up for success is to talk to them about money, Beckham says.

You could look over your credit reports together, or explain how many hours you need to work to pay for things such as dinners or fun outings.

Encouraging good routines, such doing chores and turning in homework on time, can also help.

“They're transferable habits that can help them in their life financially as they build credit,” Beckham says.

Give your child opportunities to practice managing money before they graduate to credit.

Beckham suggests letting kids test the waters with a checking or savings account. “Starting with their own money is always better because there is a sense of ownership and accountability to that,” she says.

» Ready to get started? See our picks for the best savings accounts for kids.