The Catch-22 of Young Adult Credit: You can’t get a credit card because you don’t have a credit, but you can’t build enough credit to qualify because you can’t get a credit card. It is more difficult for young adults under the age of 21 to get a credit card on their own, since federal law now requires credit card companies to check their personal income before granting a credit card. Young adults who cannot have enough income do not get approved for a new new credit card. Parents can help their children avoid this puzzle by adding the child to one of their existing credit cards.
Many credit card issuers allow you to add an authorized user to your account – a person who is authorized to make fees on the account. The authorized user gets the benefit of the credit card without official responsibility (as they would have with a common credit card).
Making your child an authorized user on one of your credit cards gives you the opportunity to teach them about credit and help them start building a good credit score without giving them full responsibility to make credit card payments. As a primary cardholder you will need to make the monthly payments on time as both your credit impact late payments.
Before you make your child an authorized user on your credit card, make sure you are both ready to take this step.
Is your child ready to be an authorized user?
Is your child trustworthy? with a credit card is a big responsibility. Since you are finally on the hook for purchases on your credit cards, you must be able to trust your child to follow whatever terms you set for the credit card. Does your child usually follow rules you set up at home? Is your child responsible with money? If you can’t answer yes to these questions, your child may not be willing to be an authorized user on your credit card.
Lay out a few guidelines
Before you call your child to add your card, make sure you set some guidelines for how the credit card should be used.
- How much can your child spend?
- What are they allowed to buy?
- Should you ask for permission before making a purchase? Or do you let them know after making the purchase?
- Who will make the payment? By when?
- How long does the authorized user arrangement take?
Discuss the consequences of not following the guidelines, such as removing access for a month or two or permanently, or lowering your purchase limit. Stick to your word. If you say you are going to remove your child’s authorized user status because they have overcharged, make sure you do. Failing to follow through with consequences sends the wrong message. Creditors are not forgiving of mistakes, so you should teach your child that there are serious consequences of misusing a credit card.
Which account should you use?
It may be better to open a separate account or add them to a credit card that you rarely use. This way, your transactions will not be mixed up and you can give your child access to the online account without the worry of seeing your transactions. Or, if you are sharing a credit card with your child, make sure you leave a buffer of available credit so that your child’s purchases do not push the balance above the credit limit.
If you add your child to one of your existing credit cards, choose one that has good credit. With some credit cards, the entire account history on the credit report is authorized user once they are added to the account. It would be counterproductive to add them to an account peppered with late payments and other negative elements. These would be added to help your child’s credit report and hurt instead.
Primary and authorized tasks User Card
Once added to the account, your authorized user will receive a separate credit card on his or her behalf. Some credit card issuers even issue different account numbers for authorized users. Even with their own card, the authorized user simply allows them to make purchases in the account. You can’t usually make any other transactions – cash advances or balance transfers. You also cannot make changes to the account, for example, close the account, request a credit limit increase, or add users to the accounts.
Note that you are responsible for all costs made on your card, even those made by an authorized user, and even if the authorized user has verbally agreed to pay for their fees. As the primary account holder, the credit card company generally holds you responsible for the credit card balance.
Will it boost their credit score?
Credit score increases from authorized user accounts were almost eliminated when FICO decided they would no longer close authorized user accounts in their credit scoring model. The decision was based on the number of people who had exploited the vulnerability to gain access to authorized user accounts. Eliminating authorized user accounts would have harmed millions of consumers, according to FICO instead of tweaking their most recent credit score model – FICO 08 – only contains legitimately authorized user accounts.
Terminate the authorized user relationship
Once your child can qualify on their own or credit, there isn’t really a need to keep yourself an authorized user. Removing your child’s authorized user credentials is as easy as making a phone call to your credit card company.