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How to Build Your Child's Credit: From a Parent with a Perfect Credit Score

Updated: Sep 5, 2023

Gifting your children a solid start to their credit history opens up a world of financial opportunities and benefits. It not only increases their chances of getting approved for loans and credit cards, but it also means they will likely receive lower interest rates, saving them a significant amount of money over time.


It takes credit to build credit, not a debit card, checking or savings account.


To build credit as a minor, your child must be listed on a credit-related account like a credit card or loan. For most parents, this limits the credit building tools they can use to credit cards. This is because minors cannot enter into binding contracts such as loan agreements. The restriction exists to protect their rights and interests.


The alternative is that your child will turn 18 and be credit invisible. Being credit invisible means they have no established credit history with any of the three major credit bureaus (Experian, Equifax, and TransUnion), so they do not exist in the credit system.


Being credit invisible will make it more challenging to get approved for various forms of credit, such as loans and credit cards, or even to rent an apartment because lenders and landlords cannot assess your creditworthiness or reliability in paying back debts.


I spent 15 years as one of the nation's leading financial educators. I also have three children of my own and, in the past, earned a perfect FICO 8 credit score. I've lived the experience of helping minors build a credit history, which I will share in this post.


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How does adding your child to your credit card affect their credit score?


When you're adding your child to your credit card, you're actually adding them as an authorized user to your credit card. You can add nearly anyone to your credit card as an authorized user; it isn't limited to your children or spouses.


Adding a minor as an authorized user on a credit card can positively impact their credit history, assuming that the account is managed well. Here's how:


Creates a credit history


Being an authorized user means the account's payment history may be reported on the minor's credit report. This can help establish credit history earlier in life.


Credit scoring models consider the age of your oldest account and the average age of all your accounts. Therefore, adding a minor as an authorized user on an older, well-maintained account can improve the age of their credit, which is typically a positive factor in credit scoring models.


It's important to remember, however, not all credit card issuers report authorized users' activity to credit bureaus, and the ones that do might not report it if the authorized user is a minor. It's best to confirm their policy with the credit card issuer.


Primary account holders have an impact


If the primary account holder maintains low credit card balances and always pays the balance in full and one time, these positive behaviors will reflect well on the minor's credit report.


However, suppose the primary account holder has negative credit habits such as late payments, high balances, or defaults. In that case, those might appear on the minor's credit report and negatively impact their credit score.

 

Being an authorized user can help establish credit, it does not replace the benefits of having an individual (sole ownership) credit account because lenders can see that the authorized user is not responsible for repaying the debts on the account.

 

How does adding your child to your credit card affect your credit score?


What is an authorized user on a credit card?


An authorized user can be your child, but it does not have to be.


An authorized user is a person who is added to a credit card account by the primary account holder. They receive their own card linked to the account and can make purchases with it, just like the primary cardholder.


However, the primary cardholder is the one who is legally responsible for paying off all the debt accumulated on the account, including the purchases made by the authorized user. The authorized user is not legally responsible for the debt.


Authorized users can use the account to build or repair their credit history, as the credit card account's activity may be reported on the authorized user's credit report. This is especially common for parents to do for their children to help them build a credit history.


Remember that being an authorized user comes with risks. If the primary cardholder fails to make timely payments or racks up a lot of debt on the card, this can negatively affect the credit score of the authorized user if the issuer reports account activity to the credit bureaus.


Also, because an authorized user can make purchases without the primary cardholder's approval, this could lead to disputes or relationship issues if not appropriately managed.


The risks of adding an authorized user to your credit card


Financial responsibility


The primary account holder is responsible for all charges made by the authorized user. If the authorized user charges large amounts to the card and can't repay it, the primary account holder will be responsible for those debts.


Credit utilization


If the authorized user charges a lot to the card, it could increase your credit utilization ratio, which is the amount of available credit you can use. A high credit utilization ratio can negatively impact your credit score.


Payment history


If the primary account holder can't pay off the balance the authorized user has added to the card, it could lead to late payments. Payment history is the largest factor in determining your credit score, so late payments could significantly lower your credit score.


Control over the account


Authorized users often can't make changes to the account, such as raising the credit limit or changing the address on the account. However, they can still make purchases, cash advances, and in some cases, access account information. This could potentially lead to misuse of the account.


Potential for disputes


If the authorized user and the primary account holder disagree about how much the authorized user should spend or who should pay for the authorized user's charges, it could lead to disputes or strained relationships.


Credit score impact


If your credit card issuer reports authorized user activity to the credit bureaus (not all do), the authorized user's credit could be affected by how you manage the account. If you manage the account poorly, it could damage the authorized user's credit score.


Given these risks, you should only add authorized users you trust to your credit card accounts. It can be helpful for someone aspiring to build credit, but it should be done with caution.


Suppose the authorized user uses your credit card responsibly. In that case, it can maintain or even help improve your credit utilization ratio - an essential factor in your credit score calculation.


However, if the authorized user overspends, causing high balances, it may increase your credit utilization ratio and potentially harm your credit score.


Similarly, your payment history, which constitutes the most significant part of your credit score, can be affected. Suppose there's a high balance that you cannot pay off on time due to the authorized user's spending. In that case, it can lead to late payments being reported to the credit bureaus, thereby negatively impacting your credit score.


The lesson is that if you add an authorized user to your account, ensure it's someone you trust to use the card responsibly.

 
 

Which credit cards can I use to build my child's credit history?


To keep it simple, use credit cards that allow minors to be added as authorized users at any age and report authorized user activity to the credit bureaus at any age:

What can be listed on a minor's credit report?


Experian, one of the three major credit reporting bureaus in the United States, outlines specific cases where a minor may have a credit report. These situations are generally exceptions and involve instances where the minor's information has been used in relation to credit activity:


Authorized user accounts


Experian can list an account on a minor's credit report if the minor is an authorized user on someone else's credit card. This can be a way for parents to help their children begin building a credit history. However, the account's adult is responsible for ensuring all payments are made on time.


Joint account holder


If your child is not a minor which would allow your child to be a joint holder on an account (typically with a parent or guardian), that account can appear on their credit report.


Fraud or identity theft


If someone has fraudulently used the minor's information to open accounts, those accounts could appear on the minor's credit report. Parents are advised to check whether their children have credit reports close to their 18th birthdays to ensure there has been no fraudulent activity.


Sadly, I had to support students who experienced this. The origin of the fraud was typically a family member who had opened a utility account in the child's name as a last resort to keeping the lights on.


Protect your child from fraud and identity theft


According to the Federal Trade Commission (FTC)


"Learn what child identity theft is, how to detect it, how to protect your child’s personal information, and what to do if someone steals your child’s identity.

  • What Is Child Identity Theft?

  • How To Protect Your Child’s Personal Information

  • How To Know if Someone Is Using Your Child’s Personal Information

  • What To Do if Someone Is Using Your Child’s Personal Information"


Where to report fraud and identity theft


Equifax

800-685-1111


Experian

888-EXPERIAN (888-397-3742)


TransUnion

888-909-8872


Your guide to report identity theft: IdentityTheft.gov


How can I teach my child to use a credit card responsibly?


There is no better time to teach your children how to use a credit card than while they are still under your roof.


We cannot assume kids are learning to manage credit cards responsibly in school. It's often up to us as parents to empower our children to understand how to manage credit cards responsibly.


FAQ's parents have about credit cards and their kids


Will my child's name be on the credit card?


Yes.


What is the difference between an authorized user on a credit card and a joint account holder?


Both authorized users and joint account holders can use a credit card to make purchases. Still, their responsibilities and the potential impact on their credit are different.


Authorized User: An authorized user can make purchases using a credit card account but does not have the legal obligation to pay the debt.


They are not responsible for making payments on the card. However, the account's payment history may be reported on their credit report, affecting their credit score.


Authorized users cannot change the account, such as raising the credit limit or adding other authorized users.


Joint Account Holder: A joint account holder is a co-owner of the credit card account along with another person.


Joint account holders have equal responsibility for repaying any debts incurred on the card. If one person cannot or does not pay, the other is still legally responsible for the debt.


Joint account holders can generally make changes to the account, including raising the credit limit and adding or removing authorized users.


The account activity will be reported on the credit reports of both joint account holders, affecting their credit scores.


In general, becoming an authorized user can be a good way for individuals to build or improve their credit without the responsibility of having to make payments. In contrast, a joint account requires more commitment, as both parties are responsible for the debt, and the credit history of both individuals can be affected by how the account is managed.


What does it mean to add my child as an authorized user to my credit card?


Adding your child as an authorized user means granting them permission to use your credit card. They will receive a separate card with their name on it and can make purchases using the credit card account.


What age should my child be before I add them as an authorized user?


The minimum age requirement for adding an authorized user varies depending on the credit card issuer. And not all credit card companies report authorized user activity to the credit bureaus.


It's best to check with your credit card issuer to determine their specific policy and reference the helpful graphic we shared earlier.


Will adding my child as an authorized user help build their credit history?


Yes, adding your child as an authorized user can help them build their credit history if the activity is reported, the credit card account is in good standing, and the payment history is positive. This can be beneficial for their future credit applications.


Can adding my child as an authorized user affect my own credit score?


Adding your child as an authorized user generally minimizes your credit score unless your child contributes to an unexpected and higher balance. Carrying higher credit card balances will reduce your credit score.


As the primary account holder, you retain control over the account and are responsible for the payments. However, it's important to monitor the usage and ensure timely payments to maintain a positive impact on your and your child's credit.


What control will I have over my child's spending as an authorized user?


As the primary account holder, you control the authorized user's spending. You can set spending limits, monitor transactions, and receive notifications of their purchases. Additionally, you can request the credit card issuer to provide spending reports or alerts to keep track of their activity.


Will my child have access to the full credit limit on the card?


Whether your child has access to the full credit limit depends on your preference and the credit card issuer's policies. Some issuers set a separate spending limit for the authorized user, which can be lower than your credit limit. This helps you maintain control and prevent excessive spending.


How can I monitor and track my child's spending as an authorized user?


Most credit card issuers provide online account management tools that allow you to track and monitor the spending activity of authorized users. You can view transactions, set up alerts, and receive notifications when the card is used.


Regularly reviewing the account statements and discussing financial responsibility with your child can also help monitor their spending.


Are there any potential risks or drawbacks to adding my child as an authorized user?


While adding your child as an authorized user can have benefits, there are potential risks. If your child misuses the credit card, it can lead to financial consequences for both of you.


Additionally, suppose you have any outstanding debt on the credit card. In that case, it will be your responsibility to repay, even if it was incurred by the authorized user.


Can I remove my child as an authorized user from the credit card in the future?


Yes, you can remove your child as an authorized user from the credit card anytime. Contact your credit card issuer to initiate the removal process. Once removed, the credit card account will no longer be accessible to your child, and they will no longer be associated with the account.


Will my child be responsible for repaying any charges they make as an authorized user?


Generally, as the primary account holder, you are responsible for repaying any charges made by the authorized user. The authorized user does not have direct liability for the debt. However, discussing responsible credit card usage with your child and establishing clear guidelines to avoid any potential misunderstandings is essential.


What educational resources can I use to teach my child how to use credit cards responsibly?


Understanding how credit cards work is crucial for maintaining financial health. Credit card education empowers your child to use credit responsibly, helping your child avoid pitfalls like excessive debt and poor credit ratings.


Credit card education resources

Modern Husbands Podcast


Rod Griffin is Senior Director of Public Education and Advocacy for Experian. He leads Experian's national consumer education programs and works with consumer advocates, financial educators, media and others to help consumers increase their ability to understand and manage their personal finances and protect themselves from fraud and identity theft. The Institute for Financial Literacy named Rod "Educator of the Year" in April 2016.

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