Adding child as 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. Credit checks aren’t required, and the user can quickly piggyback on the primary cardholder’s credit history. But this arrangement isn’t always the right move. Here’s what to know about the potential limitations of adding your kid as an authorized user and alternative ways they can build credit.

They might be too young to reap the benefits

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 or older.

Even if you can add your child, the issuer may not report their account details to the credit bureaus. Some issuers allow kids as young as 13 to become authorized users but only report credit information for those age 18 and older. It’s wise to ask your credit card company how authorized user arrangements work.

Misuse can lead to damaged credit

Being an authorized user doesn’t guarantee improved credit. “Same as the primary account holder, it can affect your credit positively or negatively, depending on how the card is used,” says Bruce Mcclary, senior vice president of membership and communications at the National Foundation for Credit Counseling.

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 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.

Authorized user status might not be enough for future lenders

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.

Co-signing your kid’s car or student loan can also help build their credit as they make on-time payments, but as with authorized user relationships, make sure you understand the risks.

Explore other ways to get your 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 like dinners or fun outings.