How authorized-user status can give your kids excellent credit
My 19-year-old sister had a 778 credit score — deep in the “excellent” range — before she ever held a job. Here’s how my parents gifted it to her, and how you can do the same for your kids.
1 A 19-Year-Old With Excellent Credit
My sister Megan called me recently asking for advice on picking a new credit card. Because she’s a college student and only 19, I assumed she’d qualify only for a student or secured credit card, so I spent 10 minutes talking her ear off about those options before I bothered asking whether she knew what her credit score was.
Her answer? 778, well into the “excellent credit” range many top-tier credit cards require. I was floored. My baby sister’s credit score was only 20 points lower than my own, despite my having a regular job, bill pay history and quite a few credit accounts to my name.
After some digging, I learned that my parents had basically gifted her near-perfect credit by the time she graduated high school. Here’s how they did it and how you can try to do the same for your kids.
The oldest credit card on her report is older than she is, at 23 years and 7 months.
The average age of her accounts is 7 years and 2 months. (Seven years ago, my sister was 12.)
12 open accounts.
An unblemished payment history.
Over $100,000 credit line.
Four hard inquiries in the past year, which is above average, suggesting that her score could rise even further once the impact of those “hard pulls” dissipates.
Those stats aren’t errors. They just reflect the potential power of “authorized user” status.
My parents didn’t have a master plan when they added Megan as an authorized user of their cards. They did so simply because giving her direct access to their cards was easier than giving her cash when she went on school trips, attended dance camps, or just stepped out for gas or groceries.
Fortunately for Megan, my parents have had many years of impeccable credit hygiene, and she automatically gained that same benefit as an authorized user of their cards. As a result, my sister has amazing credit, even though the longest-serving card she herself owns is just 1 year and 5 months old.
“The first time I found out my credit score was when I applied for an apartment and they requested my credit information. I remember sitting at the desk in my dorm room, and once I found out, I immediately called my mom and then I ran around and told all of my roommates.”
3 Should You Do This for Your Children?
This may sound odd, but you can add your children of any age as authorized users on your credit cards. Here are the caveats you should keep in mind:
The authorized user approach makes sense only if you can add your children to a card in good standing, meaning you’re paying the bills on time and keeping the balance low. Any mistakes you make on your card, such as missing a bill or charging a high percentage of your credit limit, would damage your children’s credit score.
If you’re concerned about what your children might do with access to your credit line, then simply don’t give them the actual cards. Add your children as authorized users and then — when the mail comes — shred the cards or bury them in your sock drawer. Your children will get the credit benefit regardless of whether their card is ever used; the credit bureaus don’t know the difference.
FICO and VantageScore, the two biggest credit scoring companies in the U.S., aren’t enamored of the idea of credit piggybacking. They’re working on newer versions of their credit-scoring algorithms to lessen the positive impact of being an authorized user, so your children may not benefit as much as my sister did. That said, lenders tend to be rather slow to adopt the newer credit scoring algorithms, so this may not have much real-world impact for a while.
If you trust your children with access to your money, you’ll also need to trust that they’ll protect your credit card information. Make sure they know credit card security basics, like to use it only at reputable websites and businesses, and to never leave cards lying around in public sight.
4 Teaching the Right Money Lessons
My mom, Kristen, has some additional advice: “Make sure your child understands the importance of credit and that it isn’t free money. They can go and buy something on credit and it be pretty easy, but they have to understand that the charge has to be paid.”
If you have a card with solid payment history, consider adding your children as authorized users. It can help them build their credit and learn other financial skills that will serve them well when they’re no longer under your roof.
Sean McQuay is a credit and banking expert at NerdWallet.A former strategist with Visa,McQuay now helps consumers use their credit cardsand banking products more effectively.If you have a question, shoot him an email at asksean@nerdwallet.com.The answer might show up in a future column.
Share:
Billshark · Bill Negotiation Experts Helping consumers and small businesses stop overpaying on recurring bills.
Frequently Asked Questions
How can I help my child build excellent credit?
You can add your children of any age as authorized users on a credit card you keep in good standing. If you pay the bills on time and keep the balance low, your kids automatically inherit that positive history. In the article, the author’s parents added his sister Megan as an authorized user, and she reached a 778 credit score — well into the excellent range — before she ever held a job.
Does my child have to use the card to get the credit benefit?
No. Your children get the credit benefit whether or not the card is ever used, because the credit bureaus don’t know the difference. If you’re worried about access to your credit line, add them as authorized users and then shred the cards when they arrive or bury them in your sock drawer. The positive account history still flows to their credit report.
Can adding my child as an authorized user hurt their credit?
Yes, if the card isn’t in good standing. The authorized user approach only makes sense when you pay on time and keep the balance low. Any mistakes you make, such as missing a bill or charging a high percentage of your credit limit, would damage your children’s credit score. Add kids only to cards with a solid, responsible payment history.
Will credit piggybacking always work this well?
Maybe not. FICO and VantageScore, the two biggest credit scoring companies in the U.S., aren’t enamored of credit piggybacking and are working on newer algorithms that lessen the positive impact of authorized-user status. Your children may not benefit as much as the author’s sister did. That said, lenders are slow to adopt newer scoring models, so the change may not have much real-world impact for a while.
What should I teach my child about using credit?
Make sure your child understands that credit isn’t free money. As the author’s mom Kristen advises, buying something on credit is easy, but they have to understand the charge has to be paid. Also teach credit card security basics: use cards only at reputable websites and businesses, and never leave cards lying around in public sight.
