Adding your Child to your Credit Card
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There are a lot of opinions on credit cards and credit scores. Different financial gurus have different perspectives on the needs and use of both. So, before we dive into talking about adding your child to your credit card, I am going to give you an overview of my perspective.
Do I think credit cards are good or bad? My answer is that credit cards in themselves aren't either good or bad but our behavior with them is either good or bad, thus creating good or bad results. If you are someone that can't control your spending with a credit card then by all means use cash or a debit card. If you are a disciplined spender and only use your credit card for expenses within your monthly budget and pay the balance in full every month then using a credit card can be a good thing. I personally use the same credit card for almost all of my purchases from gas and groceries to vet bills for our dogs. At the end of each month, I apply any points or rewards directly back to the balance and then payoff the remaining full balance. I never carry a balance that would be subjected to interest charges and putting myself into credit card debt. Plus, it is generally easier to dispute fraudulent charges on a credit card rather than a debit card. And I also prefer a credit card when traveling because, for example, if you check into a hotel with a debit card they generally charge your card for significantly more than your actual charges will be and it is oftentimes up to a week before you have that overage back in your account. But again, if you can't control your spending with a credit card use a debit card or cash.
Credit scores have also been called an "I love debt" score and I don't disagree with that statement. Credit scores are often negatively impacted when you pay off debt but we all know that paying off debt is generally a good thing. Credit scores are also negatively impacted when you miss payments so you want to make sure to make payments on time. Having a credit score, specifically a good credit score, makes the approval process of acquiring debt a lot simpler. But credit scores extend to a lot more these days than just acquiring debt. Credit scores are routinely checked for leasing an apartment, setting up utilities, acquiring insurance, and by prospective employers. A poor credit score or not having a credit score or credit history can create a situation of higher deposits, higher premiums, and potentially not getting a certain job. So for these reasons, having some credit history can make a big difference. It's not just for acquiring debt these days. It can be difficult for young adults just starting out when they don't have a credit score or credit history, even if they aren't trying to acquire debt.
Back to your child and your credit card. You can add your child to your existing credit card account as an authorized user. Different card types have different age requirements but generally a child 15 or older can be added to your account. When you add your child to your account as an authorized user, the history of that account attaches to your child's credit history and can help your child create a credit history before they turn 18. One thing to think about though is if your account doesn't have a good history then adding your child may actually hurt them so you want to add them to an account with a good history and be sure to maintain good history on the account. This can also be a great time to teach your child about debt and credit and making a spending budget and adhering to it.
When I was 14, I went away to boarding school so my parents added me as an authorized user on their account and I had a credit card to pay for my expenses. When I turned 18, I was able to open up an account on my own. I chose an American Express card that required monthly payment in full and did not allow you to carry a balance and put yourself in credit card debt. It was a great option for a college kid and I was mindful about my spending and paying the bill in full each month and on time. I opened that account in 1995 and I still use an American Express today and my card says "account holder since 1995." Needless to say, that is a good bit of account history. My son is 16 and I have added him to my account. He also has his own checking account and debit card that he uses for most of his personal purchases. He earns money, deposits it into his account, then pays for things out of that account with the debit card. He also is an authorized user on my American Express and has a card from that account. He uses that card when he is running errands for me such as picking up some groceries. He is a responsible kid and I trust him not to go on a spending spree with it. LOL This is a win win situation for both of us. He is able to pick up items for me without me needing to reimburse him, the charges reflect on my account when I login so I can easily account for them in my budget, and he is a building credit history from a solid account with a long (and positive) track record. When he is ready to lease an apartment or establish utilities, he will have some history attached to his social security number which will make the process simpler and most likely require smaller deposits.
A few years ago I began teaching a high school personal finance class and I can attest to the need for kids to understand how money works. When your child has a credit card it is a great time to teach them how that cycle works, when the balance needs to be paid in full to avoid interest charges, late fees, and going into debt. It is also a great time to teach your child about creating a budget, adhering to it, and tracking their spending. Not every teen is ready to be turned loose with their parent's credit card, after all you are liable for any charges they put on the card. But once you feel your teen is responsible enough to have a card, it can be a great learning tool and a great way to get them started on the right path to a positive credit history.
It is important to note that different card issuers have different age requirements and report differently to the credit bureaus so be sure to get the details before adding your child. It sure is nice being able to have my son help with household errands and not have to constantly reimburse him. If your child isn't quite old enough for this yet, don't worry it will be here before you know it!