You can boost a young person’s credit by taking advantage of a little-known authorized user provision, but credit issuer policies vary widely on how old the child must be.
Like it or not, ours has become a culture of credit. Good credit is necessary to get the best mortgage rates, a decent credit card, to qualify for an apartment, to get hired or buy a phone. If you don’t have good credit you’ll be denied that apartment, lose out on the job, pay outrageously high fees, and be required to come up with a large deposit to secure a mobile plan. Credit is required to establish utility services like electricity, water and cable. Just about anytime you need to borrow money or secure service, your credit is called into question.
One question that lands in my inbox regularly goes something like this: How can I help my son or daughter build credit? The reasons for good credit are myriad including renting an apartment, getting his or her own phone plan, getting a good job, and on it goes.
Credit, like job experience, presents a quandary: How can a young person have good credit if he or she has never had any credit?
One of the best ways is to take advantage of a little-known benefit most credit card issuers extend to their cardholders. Add this young person to your credit card account as an “authorized user.” Generally, this is how it works:
The authorized user provision
By adding a child (or any person for that matter) as an authorized user to one of your credit card accounts, you are allowing him or her to benefit from your good credit. This is totally legal and a way to help this responsible young person build a good credit score.
As an authorized user, he or she will be able to use your account according to your rules. Each month, as the activity on that account is reported to the credit bureaus and added to your credit file, it will also go to authorized user’s credit file to build his or her credit history. Credit file history is used to calculate that all-important 3-digit number we call a credit score.
Surprisingly, perhaps, as an authorized user your young person will have no legal obligation to make payments or repay the debt that he may run up on that account. He gets all the benefits and none of the requirements of repayment.
The way it should work is that you have great credit, you are not close your credit limit and are never late with payments. So far so good. However, if you have lousy credit, continuously keep that account close to being maxed out and are late with payments—that terrible credit activity is going to be reported to his account, too, as your authorized user.
Are you getting the picture here? It takes two great candidates for this method of allowing another person to piggyback off your good credit to work well—a financially mature accountholder and a responsible, trustworthy authorized user.
It is ridiculously easy to add an authorized user to a credit card account. Simply call the Customer Service number on the back of the card and make your request.
Authorized user benefits
A parents’ well-aged credit card can help a young person’s “credit age”—the number of years that credit-card account has been in place. Credit age is a critical part of a credit history file, and your authorzied user will benefit by claiming your “credit age.”
An authorized user is able to use the credit card account freely, which for a responsible user solves the problem of a young person finding it impossible to qualify for a credit card account on his or her own. Because the credit card issuer will send you a physical credit card in the authorized user’s name, he or she will be able to use it for emergencies.
There is a downside
Most, but not all, credit card issuers offer the authorized user provision. Call and find out if yours does.
Another pitfall to watch for: Some issuers who allow an authorized user to be added to the account do not report credit activity to that authorized user’s credit file. Bummer! Don’t worry, most do. But again, call to find out.
By authorizing this user on your account, you run the risk of him or her going nuts and actually using it without your knowledge—running it up to the max and thereby ruining your credit and costing you a fortune. It can happen! This provision should be reserved for only highly responsible and trustworthy individuals. Make sure you set up very clear guidelines and rules for your authorized user. More on that in a bit.
Then there’s the other side of the coin: Should you as the primary account holder on this account run into tough times so that you cannot keep up with payments, run up the balance to near or past the credit limit, or God forbid default altogether, you will not only ruin your credit score, you’ll tank your authorized user’s credit history, credit score, and future too. It takes years and years of clean credit living to repair and reverse bad credit.
Must the authorized user know about this?
No. This may sound odd or at least manipulative, but you can add your young person as an authorized user and not tell them. When the card arrives in your authorized user’s name, put that credit card away in a safe place. Then sit back and allow your “user” non-user to grow a killer credit score based on your credit activity on that card. Just keep in mind that good or bad, how you handle that account will go to either help or harm that person’s future.
Can you add a minor to your card?
Each credit card issuer has its own minimum age rule from no minimum (you could add an infant, but I wouldn’t advise it) to a specific age. Most however, do allow minors to become authorized users. Here are a few examples of the minimum age requirement.
- American Express, age 13
- Bank of America, no minimum
- Barclays, age 13
- Capital One, no minimum
- Chase, no minimum
- Citi, no minimum
- Discover, age 15
- U.S. Bank, age 16
- Wells Fargo, no minimum
Adding a very young child to your account would be, in my opinion ill-advised. There’s no reason to do that. It doesn’t take 18 years as an authorized user to build a great credit score. You don’t know what may happen during those years that might backfire for the child, especially if you add him or her to your account and then forget. Should you run into a rough patch on the financial highway of life, you could harm that child’s future.
What information is required?
It varies from one issuer to another. Some, like Chase, ask for only the name and address of the user you want to add. Others don’t seem to verify age. Citi and Wells Fargo request the name, address and date of birth of the authorized user. American Express, Bank of America, Capital One, Discover, and U.S. Bank, at last check, require name, address, birth date and Social Security number.
Pro-tip: It takes a Social Security number to report anything to credit bureaus. That should be your clue which credit card issues will report to your user’s account. Don’t assume, however. Check to make sure.
Managing your authorized user
As the primary cardholder, it would be foolish for you to adopt a hands-off approach. Your authorization for this person to piggyback onto your account should come with very clear guidelines and specific rules—from any actual use to the requirement that if you use it, you repay it. You’d be wise to set up the account with online access, then trust but verify. Daily.
Make sure your authorized knows what to expect if he or she violates your terms and conditions on this arrangement. The consequences should be swift and sure.
How long will it take?
Don’t expect your authorized user to go from no credit history to having a credit score equal to yours overnight. First, your score reflects many years of credit history based on many things—not just this one account. Your authorized user should see some movement after 6 months of being an authorized user, provided it is an account you use regularly, pay flawlessly, and never carry a balance of more than 30% of the available credit.
Can I un-authorize my user?
Absolutely. And it’s very easy. A simple phone call from you—or your authorized user—will remove him or her from the account with no further consequences, at least not from the credit card company!