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Parents who want to help improve their child's credit score and credit history can take a fairly simple step, according to money experts: Add your child as an authorized user to your credit card account.
The goal is for a child to build credit at a relatively young age by piggybacking on the good credit of their parents – i.e. the primary account holder.
The strategy generally works best for children in their late teens, around age 16, or even those in their early 20s, said Ted Rossman, a senior industry analyst at CreditCards.com.
Parents could view it as a “stepping stone” to building credit, he said.
“It has become increasingly difficult to build credit in your own name, and this is one of the tools to get around that,” Rossman said. “It can really help a lot.”
Allowing kids to learn how to use a credit card — and showing them how to pay off their debt responsibly — can also help them “learn healthy credit card skills early on,” said Andrea Woroch, a consumer finance expert.
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Parents should only try this authorized user strategy if they themselves have good credit, experts said.
“As long as you pay your bill on time and don’t carry a large balance each month, your child will benefit from your positive credit history and credit score, helping them establish and build credit,” Woroch said.
Ideally, they should also have an end date in mind.
Maybe for one to three years, depending on the circumstances, Rossman explained.
It is important that this is not a joint account. Legally, the primary account holder is responsible for all authorized user transactions. That means a parent is on the hook if their child misuses a credit card, such as by overspending or not paying their bill on time and in full each month, he said.
Experts say parents can set spending limits for authorized users depending on the card provider.
That means setting a relatively low loan allowance, perhaps just enough for the teenager to fill up his car's gas tank or go to the movies a few times a month, they said.
Parents don't even have to give their children the card.
“The credit benefits actually impact whether they use the card or not,” Rossman said.
Ultimately, parents should make sure they “set clear rules and boundaries about whether and how they can use the card,” Woroch said.