You can boost a young person’s credit by taking advantage of a little-known authorized user provision, but credit issuer policies vary widely depending on the young person’s age.
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, an apartment, a job or 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 any time 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, buying a 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 three-digit number we call a credit score.
Perhaps surprisingly, as an authorized user, your young person will have no legal obligation to make payments or repay the debt that he or she may run up on that account. They get all the benefits and none of the requirements of repayment.
This plan will work if you have great credit, are not close to your credit limit and are never late with payments. So far, so good. However, if you have lousy credit, are continuously close to being maxed out and are late with payments, your 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 account holder 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
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.
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 on 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.