Parents can kick-start their young adult’s credit journey by adding him or her as a co-authorised user on their Credit Card. Let’s find out how.
Young adults often find themselves in a Catch-22 situation when they’re about to kick-start their credit journey: since they don’t have any credit, they can’t qualify for a Credit Card and they can’t build their credit if they don’t have any Credit Cards or loans. While they can’t do much themselves until they have a steady source of income, as parents you can help your kid embark on their credit journey by adding them as an authorised user on your Credit Card.
What Is An Authorised User On A Credit Card?
Most banks allow their customers to add authorised users to their account- an authorised user is a person who you’re authorising to make charges on your account without being responsible for making any payments towards these charges. This is different from a joint account holder where you would be under a legal obligation to pay the Credit Card balance along with the person you’re holding the joint account with.
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How Does It Help Your Child Build Credit?
When you add your child as an authorised user on your Credit Card, you’re helping them initiate their credit journey and build their Credit Score without giving them the full responsibility of making Credit Card payments. You have to keep a watchful eye on the expenses that are being made on this Credit Card so that you don’t exhaust your credit limit and miss out on your payments since late payments will impact both of your credit.
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What Should You Keep In Mind?
Before you decide to add your child as an authorised user on your Credit Card, ask yourself if you can trust your child to be responsible with your Credit Card. If your child has scant regard for rules and responsibility, you’re leaving your Credit Card vulnerable to reckless spending that will negatively impact your credit as well as Credit Score. Adding your kid as an authorised user may teach him/her about credit and perhaps even help them become more responsible with money, but since you’ll be responsible for whatever payments are made on the card, you need to be absolutely sure that you can trust your child to abide by whatever terms and rules you set for the Credit Card.
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Lay Down A Few Rules:
Before you get in touch with your Credit Card issuer about adding your child to your account, make sure you lay down some ground rules for your kid to minimise the misuse of your card:
- Limit the expenses that your child can make on your card.
- Set the ground rules for what all purchases they can or cannot make on this card. Going on weekly shopping sprees or buying themselves an XBOX are rude shocks you rather not deal with when the monthly bills arrive.
- Set guidelines for your child to check with you before making a purchase or keep you posted of any expenses that he/she has made after they’ve made them.
- Set a date till when the authorised user arrangement will last and let your child know about it too.
Monitor expenses on the Credit Card to which you’ve added your child as an authorised user and ensure there’s been no misuse. If your child has misused it despite repeated warnings, you should consider removing his/her authorised user status as this will impact your credit profile negatively.
Which Account Should You Use?
If you’re considering adding your child to an existing Credit Card, it may be better to add them to an account that you seldom use or open a new account. Since it’s unlikely that you’ll be using that account regularly to carry out transactions, even if your child has access to the account online, you can rest assured that your child won’t be able to view your transactions. One thing to note if you’re sharing a Credit Card with your kid is to leave a buffer of available credit so that your child’s purchases don’t push the balance over the credit limit.
Another thing to keep in mind is that if you’re adding your kid to an existing Credit Card, you should choose one that has a positive payment history. Adding him/her to a Credit Card account that is riddled with negative items like late payments, will hurt rather than help your child’s credit. This will also defeat the purpose of adding your child as an authorised user in order to build their credit.
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Once your child qualifies for credit on their own, you can remove them from your Credit Card as an authorised user. Removing your child’s authorised user privileges is as simple as a phone call to your Credit Card issuer.
If you’re looking for a new Credit Card to add your kid as an authorised user to, there are plenty of options to choose from. Just click on the button below to get started.