Your Card, Their Credit History?
Several years ago, when my two boys were younger, I heard that I could improve their credit history if I listed them on my credit card as authorized users. I did but never gave them cards, on which I have made regular payments. Is it true that I improved their credit history? Now that they are 23 and 21, should I keep them as authorized users?
It's my firm belief that parents shouldn't mix their credit history with their children's, and that includes putting them on your card as authorized users.
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As I wrote a few months ago, parents have an obligation to teach children how to manage money so that kids can apply for credit on their own once they're mature enough to handle it. But parents have no obligation to give their children credit, or the benefit of their own credit history.
Why is it a bad idea? Let me count the ways.
First, children don't need a credit history, so there's no reason to push them into getting one.
Second, if they're not actually using the card, they're not learning anything about how to manage credit wisely.
Third, if you're the one who makes the payments, your kids aren't really creating their own credit history.
Fourth, if they somehow manage to get their hands on your card and buy things you aren't aware of or they neglect to pay the bill, your credit rating can be damaged.
Fifth, children may or may not acquire a credit history this way. It all depends on whether the credit-card issuer reports them to the credit bureaus as authorized users.
Finally, kids don't need to be authorized users on your card in order to establish a credit record of their own. Once they turn 18 and head off to college, credit-card issuers are only too happy to give them any number of cards in their own name.
I recommend that college students get a couple of years' experience managing their expenses with cash and a checking account, and then apply for a credit card before they graduate.
If a young adult is having trouble getting credit, one strategy is to apply for a secured card, which requires the cardholder to make a savings deposit equal to the credit line (for a listing of secured cards, go to www.cardweb.com or www.cardratings.org).
And it's certainly time to take your kids off your card.
Janet Bodnar is deputy editor of Kiplinger's Personal Finance magazine and the author of Raising Money Smart Kids (Kaplan, $17.95). Send your questions and comments to email@example.com.