As a parent, you want to provide your children with every advantage and chance possible to ensure their future success. Perhaps at some point, you’d enjoy it if your children stopped regarding you as the “Bank of Mum and Dad” and instead learned how to manage their cash properly.
Your children’s credit ratings must be high for other banks to take them seriously. A strong credit score may assist individuals in obtaining employment, determining where they reside, and affecting their ability to get cheap financing. Registering your kids as authorized users on your credit cards may sound contradictory. It is one way to teach them financial responsibility.
What Does the Term “Authorized User” Mean?
An authorized user is a person who can charge a credit card account. Certain credit cards also provide many advantages to authorized users as they do to the original cardholder. While the credit card history may be reported to the authorized user’s separate credit record, the authorized user is not legally liable for the debt; the primary cardholder is.
What Is the Difference Between a Joint Account and an Authorized User?
A joint account is one in which two or more individuals are legally liable for a debt. Jointly owned mortgages, vehicle loans, and credit cards are all possible.
In most situations, a joint account holder cannot be released from the obligation until the debt is refinanced or the creditor grants consent. At this point, the creditor would likely want to determine if the new primary account holder can handle payments on their own. By contrast, an authorized user may be readily withdrawn from a credit card at any moment.
Eligibility for Credit Cards
Filing for bankruptcy, regardless of the type or circumstances, will have a long-term influence on your credit score. For a long time, a bankruptcy will be visible on your credit report according to Bankruptcy HQ report. A Chapter 7 bankruptcy will be on your credit report for ten years, whereas a Chapter 13 bankruptcy will appear on your report for seven years.
When you have a low credit score, using a credit card responsibly can help you rebuild your credit. It may feel like a catch-22, because even if you were approved, you won’t be eligible for many cards with high rewards or premium amenities.
Regardless, the best course of action is to apply for a credit card targeted for those who are rebuilding their credit. A secured card is great for this, and you may be able to get approved even if you have recently filed for bankruptcy. The credit limit on a secured card is usually equal to the amount of the security deposit you put down.
Even if you have a blemished credit history, a few unsecured card issuers will not verify your credit score and may be prepared to grant a line of credit to you. These cards usually come with a slew of fees and exorbitant interest rates, so keep that in mind when you’re out shopping. The costs of secured cards from large issuers are usually lower.
The Advantages and Disadvantages of Adding an Authorized User
There are various reasons you may want to enroll your children as authorized users of your credit card. Bear in mind that there may be implications for both you and your children once they are included.
Six Justifications for Adding Your Children as Authorized Users
- Instill financial responsibility in children. A credit card is an excellent teaching tool for instilling financial commitment in your children. Authorized users can make credit card charges on the principal cardholder’s card. If handled correctly and supervised by a parent or guardian, this may educate young people to pay off monthly costs without accruing interest.
- Give your youngster autonomy. Allowing your youngster to have their credit card fosters financial independence. The negative is that you lose control over their expenditures.
- Encourage discussion on money. Giving your child a credit card is not the conclusion of your money lesson—it is the start. Parents should have frequent conversations with their children regarding their credit card use. Each month, print the statement and go through the transactions. Don’t only speak to them; listen to them and encourage them to ask questions.
- Establish their creditworthiness. As an authorized user, your credit card will help establish your children’s credit history. Their credit profile will be updated with their credit card use and payment history. This will assist them when applying for their credit card or other forms of credit.
- Earn points for their purchases. If you have a rewards credit card, you will receive points every time your kid makes a purchase. While these purchases may seem slight, the incentives accumulate over time. Specified credit cards give bonuses at certain spending thresholds, implying that their investments will also help you reach such milestones. For instance, you get a second reward night when you spend at least $15,000 on the Chase The World of Hyatt Credit Card each year.
- Benefits are available to authorized users. Certain credit cards that provide cardholder perks also offer authorized users some benefits. These advantages may include access to airport lounges, rental vehicle protection, and complimentary checked luggage. The Citi® / AAdvantage® Executive World Elite Mastercard®* entitles all authorized users to free Admirals Club lounge access while traveling American Airlines. The Chase Sapphire Reserve® card provides authorized users with roadside assistance, which may provide peace of mind while handling the vehicle keys to your adolescent.
Six Reasons Why You Should Not Add Your Children as Authorized Users
- You are liable for their expenditures. As the principal cardholder, you are financially responsible for any purchases made by authorized users. It is critical to emphasize the credit card spending power responsibilities before giving them the card.
- They may have complete access to your credit limit. For most credit cards, authorized users can spend up to the credit limit on the primary card (or potentially higher). Individual credit limits for authorized users may be established on business and American Express credit cards.
- It might be challenging to determine who spends what. It may be difficult to distinguish between your children’s and your spending, and Authorized users usually get the same credit card number as the primary cardholder. American Express personal and business cards have unique card numbers and itemized monthly bills.
- Their purchases may affect your credit score. 30% of a credit score is determined by credit use. If your children make large purchases on your credit card, your service may rise, lowering your credit score. This might have a personal impact on your ability to get a loan or refinance a house.
- Certain credit cards charge authorized users a fee. Not all approved user credit cards are cost-free to add. Authorized users may incur a surcharge. Chase Sapphire Reserve® costs $75 per year for each extra user.
- Your credit activity may be detrimental to them. Adding children as authorized users may be harmful to them if the principal cardholder’s financial situation deteriorates. A late payment, charge-off, or bankruptcy may reflect negatively on the credit of any authorized users.
How to Create an Authorized User for Your Child
Typically, adding an authorized user is a simple operation. To begin, contact your bank or card issuer at the phone number printed on the back of your credit card. Certain issuers allow cardholders to add authorized users through an online dashboard.
How can I create an authorized user for my child?
The procedure for adding your kid as an authorized user is identical to that for anybody else. Each bank has its requirements for adding an authorized user to credit cards. Keep the following information about your kid on hand in case your bank requests it:
- Complete name
- Electronic mail address
- Number of the social security card
- Contact information
- Relationship with the cardholder’s main card
- Postal address
How to Deactivate Your Child’s Authorized User Status
As your children mature and begin to establish their credit, you may choose to remove them from the list of approved users. However, you may decide to take your time.
Because your credit card may have a higher credit limit and more extended credit history. Consider adding your children as authorized users for a couple of years after creating their first accounts. This enables your account to enhance their credit ratings while their accounts establish their credit history and increase their credit limits.
When you’re ready to deactivate your child’s authorized user status, contact your bank at the number shown on the back of your credit card. Certain banks enable you to deactivate authorized users online or by a protected message sent via online banking.
Try requesting a new card number from the bank because your and your child’s credit card numbers may have been identical. This will deter your youngster from bringing more accusations.
The 2009 Credit Card Act
The 2009 Credit Card Act strengthened cardholder rights and imposed higher rules on card issuers to curb abusive practices. Transparent marketing enables more straightforward card comparison, clearly defined terms and conditions, monthly statements containing information on interest rates, the amount of time necessary to pay off debt, and more.
The Card Act safeguards young cardholders by prohibiting misleading marketing methods on college campuses and increasing regulatory oversight of cardholders under 21.
The 2009 Card Act’s Effects on Young Adults
With the passage of the Care Act in 2009, the authorized user approach for young people became even more critical. This rule made it more difficult for persons under 21 to get personal credit cards by requiring them to demonstrate their capacity to repay the loan independently.
Since many college-aged children lack employment, they may become authorized users or have their parents co-sign for them. Adding your children as authorized users are preferred since you retain control of the account as a parent. As a co-signer, the only option to be released from the responsibility is to cancel the credit card or demonstrate the new solo account holder’s financial independence. Please keep in mind that not all banks let co-signers on credit cards.
How Much Does It Cost to Add Your Child as an Authorized User?
Certain credit card issuers charge for each extra user—particularly on annual fee-based cards. Certain credit cards provide no-fee authorized users.
To find out how much it will cost to add your kid as an authorized user, call the number on the back of the card or contact the issuer online.
Consider Providing Your Child with Some Ground Rules
It’s usually good to establish ground rules with youngsters before allowing them to use authorized user credit cards. Ascertain that you and your child agree on the permissible and prohibited uses of the credit card.
The following are some possible discussion topics:
- How much money are your children allowed to spend each month?
- What are the products they are permitted to purchase?
- Which businesses are they permitted to shop at?
- Is authorization required before making a purchase?
- How are they going to make their purchases?
- Will they make payments directly to you or the bank?
- How long will they be able to access the system as authorized users?
Additionally, discuss what will happen if they do not obey the rules. Will you take away their credit cards or impose any other restriction on their purchases?
Your kid does not have to use or even hold the authorized user credit card for it to help develop their credit history. You may put their names on a card and retain the actual certified user cards to avoid mistakes.
Keeping credit cards away from your kid does not help them develop good credit habits or offer emergency funds—it only generates credit profiles. To assist them in developing positive habits while minimizing your risk, inquire with your credit card provider about lowering the credit limits on authorized user cards.
Although not all banks provide this service, certain card issuers, such as American Express, do. Each authorized user has a different credit card number from the principal cardholder with American Express. This makes it simple to establish which card was used to make transactions.
Bank Policies Regarding Authorized Users
The ability to add a kid as an authorized user is age- and bank-dependent.
Children aged 18 and older may easily be added as authorized users. Specific banks may prohibit the addition of minors under a certain age as authorized users. The following table details the minimum age restrictions for many of the most well-known banks.
Adding a kid as an authorized user on your credit card is analogous to giving a child a hammer. A hammer may be used safely and responsibly to hang a painting when used appropriately. If your youngster is careless, they may damage an heirloom. Before proceeding, ensure that your kid is prepared for the responsibilities associated with being an authorized user.