If you have a credit card, you can add authorized users – who are individuals with purchasing power. An authorized user can be a spouse, family member, or actually, anyone, since there are no stipulations on who can be authorized.
However, some companies do have minimum age requirements.
Minimum Age
The minimum age to become an authorized credit card user can vary, depending on the issuing company. According to CreditCards.com, US Bank has the highest minimum age requirement: authorized users must be at least 16 years old. Both American Express and Discover allow consumers to add authorized users who are 15 years old. Among credit card companies with age limits, Barclays has the lowest minimum age: 13 years old. However, several credit card companies have no minimum age at all. These companies include Bank of America, Capital One, Chase, Citi, and Wells Fargo.
If you add your child as an authorized user, you will receive a separate card for this individual, and depending on the company, you might also receive a separate statement. While authorized users can make purchases, they are not authorized for cash advances, and they cannot request a credit increase.
Advantages of Adding Children
Adding your child as an authorized user provides convenience in a variety of situations. For example, it can come in handy if your child is away from you and has an emergency or an unexpected expense (on a field trip, etc.). If your child is old enough to drive, the card can be used to purchase gas and for repairs. Also, if your child drives, this means you won’t have to be present for shopping trips to buy jeans, clothes, and shoes – which can be a traumatic experience for both of you.
Adding your child as an authorized user can also help them build up their credit since they benefit from you paying your credit card bill on time each month. And, there’s an extra benefit if you use this opportunity to discuss debt and credit with them. Learning about personal finance at an early age can help them to become responsible consumers.
In addition, some people want to add their children as authorized users because qualified purchases by authorized users count toward rewards points.
Disadvantages of Adding Children
While adding your child as an authorized user provides many benefits, this action could potentially be detrimental to both of you. For example, if your child makes a lot of charges without your permission, the card company is going to hold you responsible since you willingly added them to the account.
Also, optimal credit card utilization is approximately 30%. When you go over half of your spending limit (for example, you have $2,000 limit, and your balance is over $1,000), your credit score starts declining. The closer you get to your limit, the lower your score can drop.
If adding your child as an authorized user results in more usage of the card (and you’re not significantly increasing your monthly payments to reflect this), this is moving you closer to your limit – while your balance is going up, your score is going down. In addition, since this is the only credit on your child’s record, it will reflect that this individual is a “high-risk” borrower.
In fact, even if your child never uses the credit card but you maintain high balances, it will still reflect poorly on them. Another consideration: if this is a card that includes a history of over-the-limit fees and late payments, it’s best not to include your child as an authorized user so their credit history won’t reflect your financial mistakes.
Also, if your child decides to make an unauthorized purchase that pushes your account over the limit – and is dinged with fees – both of your credit scores will suffer.
Some parents might be tempted to add their children to get bonus points on their rewards cards, but if this is the only reason you would add a child as an authorized user, weigh this against what would happen if you ran into financial trouble and your child’s credit would be negatively impacted.
In addition, the Federal Trade Commission warns of various ways that credit card users could put themselves at risk for theft, and many of the ways are more likely to occur in children. Some examples include lending the card to someone else, or writing the credit card account number down in a location that could be discovered. Other examples include signing a blank charge slip, or not checking receipts for accuracy.
If you decide to add your child as an authorized user, be sure to discuss best practices for avoiding theft or fraud.
Other Considerations
Credit card debt is one of the biggest enemies to saving money. Depending on your balance and your interest rate, you could end up spending over $100 a month in payments for goods and services that you’ve long since forgotten about. And half of your monthly payment may only cover the interest on your account. Paying off credit cards might be a better goal than adding users.
If you want to provide an emergency or convenience factor for your child, a prepaid debit card might be a better option. This allows you to avoid interest fees and limit the possibility that your child might make charges that could damage both of your credit scores.