I should have titled this, How to Set Your Child Up For Financial Success (or Failure)…..adding your child to your credit card while they’re young can have either a overwhelmingly positive influence on the rest of his life, or devastatingly negative influence. Legally, it’s a gray area, so why do I want to talk about this?
When my husband was born, his parents gave him an incredible gift: They opened a credit card for him.
Say what?
Yes, you read that right! About the time my husband was 6 months old, his parents opened a credit card for him. I guess they didn’t technically open him is own credit card, but they added him as an authorized user on their credit card.
Why did they do that?
The Big Guy’s parents have excellent credit and they wanted to pass that along to him! Imagine our shock when we went to apply for our first loan and found out that he had a credit score of 797! (We were 19)
While this was an awesome thing that The Big Guy’s parents did for him, it could have very easily backfired!
So, my questions are this: When should you add your child to your credit card? What’s more, what are the moral implications of doing so? Will adding your child to your credit card actually build your child’s credit score?
Let’s say, for a moment, that we absolutely agree that if the parents are able to manage credit responsibly, they should, in fact, add their child to their credit card, and pass along their excellent credit. It’s a priceless gift, really.
Yes, you should if you:
- Have Excellent Credit already: This means that you are very steady with your credit. You have accounts that have been open for a long period of time. You always pay your bills on time, and chances are you pay off the balances every month.
- You pay off your balance in full every month.
- Have a moderate amount of debt – or none!
No, you should not if you:
- Do not pay your credit card off in full every month.
- Have a large amount of debt
- Have had problems managing credit in the past: Please note, this does not mean that people can’t change. But, if you’ve had credit problems in the past, I urge you to be cautious with your child’s credit.
This is a very cut & dry, black & white analysis of whether you should build your child’s credit when they’re young, but the implications of doing so are far greater than just the how-to.
Beyond the black & white, there is an argument for not building your child’s credit early on that I’d like to discuss:
You don’t want to hand everything to your children.
This is a perfectly valid argument, and the principle behind it is one that I agree with wholeheartedly! In practice, though, not so much.
I believe the way the credit score system is set up is wholly unfair. If you have no credit cards or debt, then you have no credit, which is worse than bad credit.
How is that fair?
Also, one tiny mistake when you’re just trying to get by can set you up for year of bad credit.
I know, I know, life isn’t supposed to be fair, but I feel that if we are committed to raising a daughter who is financially repsonsible – including knowing how to utilize credit to her advantage, then should we set her up with good credit when she goes out one her own?
Yes, she could ruin her great credit right out of the gate – or she could see if for what it is: an incredible gift her parents gave her that will help her for the rest of her life if she guards it!
What are your thoughts on helping to build your child’s credit by adding them to your credit card?
Is that something you would consider? Have you done it?
Leave me a comment below – I would love to hear your stories!
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I don’t understand what the point is? Is there a difference in rates if you have 800 credit score or if you have 770? Kids right out of high school can get credit cards and build their score just as quickly as anyone else. Case in point, credit card companies setting up on college campuses.
In case it isn’t clear where I stand on the matter, No, you shouldn’t do this.
Hello!
I think it would be a good gesture to give your child credit before they can get it on their own. I don’t have children, but I have actually done this for my boyfriend. When he applied for his first card and didn’t get approved it was because he had absolutely no credit. I added him to my account as an authorized user and he now has a great credit score.
A negative of this would always be the parent (or person helping a friend) that doesn’t have the best history with credit. My mom put me and my siblings on her credit cards when we were younger as authorized users to build us credit. It actually worked out pretty well until she had to file bankruptcy and then that account showed negatively on my credit report when I went to buy a car. Not like she did it on purpose, and I was already 20 at the time I went to do this, so she likely forgot I was even on there. I got it taken care of because I was only an AU, not a joint card member, and I was underage at the time I was added.
Moral of the story – I think it’s a great concept and I will do it for my kids when I have them because I will be conscious of the consequences if I were to hurt their credit. I would agree that you shouldn’t do it if you can’t manage your own credit though.
A negative of this would be you and your boyfriend break up and you forget to remove his name off your CC. That could be disastrous for you.
Yep – you have to be sure that everyone can be responsible before doing this :-)
This is exciting to hear! We added our daughter to our credit card when she went out of state to visit a friend. It’s nice to hear that this could help her credit. I’ve never thought of that.
At the age of 21 I had saved enough to put a down payment on a duplex. Unfortunately, I had zero credit history as I didn’t have one credit card. It took a lot of work to make the loan go through without it.
Your situation is, unfortunately, the norm for those who don’t have credit. As long as your know that you can manage your credit correctly, adding your child is a great way to jump start their future.
Let me tell you my story in this area.
When I was 19 and going off to college, my mom strongly suggested that I take a CC out in my name and she put hers on it also. The limit was around $10,000 I think. I was attending a private college that did not accept gov’t aid in any way. The idea was that I would put all the tuition on the CC (thus receiving a 10% discount) and I would pay it off throughout the year.
Unfortunately I now know that my mother has never been good with money and has always had problems with spending on CC’s. My father was great with finances but he was always trying to fix the problems created by my mom. I wish he had stepped in and said not to do this. I also had no training in finances growing up or in school. Looking back, I was thrown into the deep end and couldn’t swim.
Obviously I didn’t pay off the bill that year. Eventually at my Mom’s suggestion we transferred the balance to two different cards so as to get 0% interest and once again try to pay it off. I went into marriage with 2 nearly maxed out CC’s. You would think by now I would’ve stopped listening to the finanacial advice of my mom but nada. She suggested that we (new husband and myself) take out a CC from my bank together at the start of our marriage. Our credit was still fine and I didn’t think anything of it or using it. Within 2 years of marriage we purchased our first home and had maxed out this CC :/
By 3 years into our marriage I realized something had to give. I kinda learned most of the things you discuss on this blog on my own over the course of time: meal planning, cooking at home, buying used/clearance, buying used cars, get rid of cable or home phone, etc. We have been married 11 years now and it took us until 3 years ago to pay off the CC debt that I got saddled with at the direction of one of my parents. After our experiences, we’ll not be recommending the use of ANY credit cards to our kids. We won’t add them to ours (we carry ONE small one so we can rent vehicles every now and then), and we will also teach them how they can buy a house without taking out a mortgage. I know not everyone will agree with me :) and that’s fine.
Wow – thanks for that story! I can definitely see why you want nothing to do with credit cards. I still love them (well, love/hate them) but I can definitely see why you don’t! Thanks for sharing!
I don’t think it is necessary to set up children for a debt dependent lifestyle. At a point in our life when we were fed up, we decided not use debt for anything including big ticket items like houses and cars. We have a home with no note and our cars are paid for. I want them to do the same and experience the freedom a debt free lifestyle will afford them.
I see lots of people with a negative view on credit due to lots of reasons. All show how our society has become less capable of handling responsibility by blaming the second party. Credit is as good as the user. By teaching a child responsibility you’ll propel great character and attitude.”Emphasize” Not to be indulgent, materialistic, and to “know the difference between need and want”. I’m not being self righteous; but truthful. I’ve gone through life lessons; including bankruptcy- the kind that is justifiable by most people. Health issues!! I learned! Now I have a great credit score. I buy mostly the essentials, pay in full monthly and make $600 cash back every year + have CC benefits. Purchase protection, double the warranty, car insurance, etc. You know yourself. Exercise caution. Be wise!