UNTIL OUR SON TURNED 15, most of our financial education efforts focused on having conversations about money, but in different buying contexts. How we decide on food purchases. How much we budget for clothes. Why we use credit cards. What a credit card bill looks like. The consumer research we do before making a major purchase.
We figured no one conversation would stick, but the knowledge and the ideas would create a general understanding over time. We also explained the importance of paying all our bills in full and on time, and consistently spending less than we earned. In addition, we said we lived by the motto that, “We never buy something on a credit card if we don’t already have the cash in the bank to pay for it.”
But when should we give our son an actual credit card?
Today, you need to be at least age 18 to get your own credit card. But because 18-year-olds need to prove they can make the necessary card payments, they often end up opening an account jointly with one of their parents.
What if your children are under 18? Instead of opening a joint account, you can add them as authorized users. Authorized users aren’t legally responsible for paying the credit card bills involved. Nonetheless, adding your children to one or more of your credit cards can help them build a credit history—though you should check with your credit card companies to make sure they do indeed pass along information on authorized users to the credit bureaus.
We did just that. When our son turned 15, we added him as an authorized user to some of our cards. Like that idea? Before you adopt this strategy, you need to understand credit histories and credit scores, and what this strategy could mean—both positive and negative—for your children.
Credit Karma offers details on different types of credit scores. Here are the five FICO score ranges and what they mean:
Meanwhile, if you want to know how your score compares with the rest of the country, the Motley Fool has a chart that shows the distribution of FICO credit scores. For example, 21% have a score between 800 and 850.
Before we did anything, we checked our credit scores to make sure they were reasonably high. Why? If you have an excellent credit score and you want to add a child as an authorized user, there isn’t a problem. Indeed, there’s not too much to worry about if your credit score is above 775. But if it’s any lower or likely to head lower, you’re potentially saddling your children with credit scars they don’t need. Remember, whatever you do with the credit cards that are attached to your children, that’ll become part of their credit history.
We were comfortable with our credit scores and our prospects for the future, so we signed up our son as an authorized user on three different cards. Discover and American Express have a minimum age of 15 for authorized users, while Chase has no age minimum.
Alan Cronk retired after spending 32 years in the newspaper industry as a marketer, editor and writer at the Winston-Salem Journal. This is the fourth in a series of articles about his and his wife’s experience educating their child about money. Alan’s previous articles: Baby Steps, No Laughing Matter and Generating Interest.