Dear Liz: My credit scores are good (over 800 when I refinanced my mortgage last year). I was thinking of listing my son, who is 14, as an authorized user of my credit cards to start establishing his credit history. Will it work? Is there any other way to help him? If it is too early, when is a good time to start?
Answer: As long as you handle your credit cards responsibly — using 30% or less of your credit limits and paying on time — adding your son as an authorized user could indeed help him build his credit history.
This is important, because under the credit card reform law that goes into effect in February, people younger than 21 will have a much harder time getting credit cards and thus building credit on their own. Yet they will need good scores to get apartments, good insurance rates and decent loan rates when they leave the nest.
Adding a child as an authorized user to a card is a low-risk way to build his credit since you don’t have to give him the card or access to the account. Instead, your history with the card is simply added to his credit reports, assuming your credit card issuer agrees (call and make sure first; some issuers report authorized-user information only for spouses). All versions of the leading FICO credit scoring formula factor authorized-user information into their scores, although the latest iteration — FICO 08 — limits how many authorized-user accounts are included.
When you decide to do this is up to you. A longer credit history is generally better, but you should add him only when and if you’re comfortable doing so.
If you decide to do this, discuss with your son the reasons why and also take the opportunity to talk about responsible use of credit. Make sure he knows the importance of paying all balances in full every month and how carrying credit card debt is foolish and expensive. He may not be using the card now, but he’ll have his own credit soon enough, and it’s never too early to instill the importance of using cards as a convenience rather than a crutch.