When your children are young, it can be impossible to imagine entrusting them with a credit card. Yet eventually, they’ll reach the age where they will need to make their own purchases without you. It could be a movie ticket, lunch with friends, or a few items on your grocery list, but the time will come when you will want your child to have his or her own credit card.
Strictly speaking, parents cannot open a credit card account for their minor children. Only a person age 18 and over can enter into a legally binding contract, which includes applying for a credit card as the primary account holder. Plus, thanks to the CARD Act, borrowers under 21 need to demonstrate an ability to repay or have a willing co-signer.
Nevertheless, most credit card issuers allow minors to be added as authorized users to an adult’s credit card account. American Express, for instance, allows parents to add children 15 years and older as authorized users to an existing account, a spokesperson confirmed. You can call your specific issuer to ask about their requirements.
What’s an Authorized User?
As an authorized user, you child will receive a credit card with his or her name embossed on it. They will be able to use the card to make charges to your account, but they generally won’t have any other privileges that primary account holder has, such as adding other cardholders, closing the account, or redeeming rewards.
Furthermore, authorized cardholders are not responsible for repayment of debts. The primary account holder is always responsible for the payment of all purchases, interest charges and fees. However, your account will likely appear on your child’s credit report, which can help them to establish good credit at a very young age. (Again, ask your issuer if they report their authorized users to the credit bureaus, particularly if your aim is to help your child build credit.)
Before Adding Your Child to an Account
When you add your child as an authorized cardholder on your account, you are granting him or her significant purchasing power as well as serious responsibility. On one hand, your child will be able to make charges to your account, just as you can. This can offer parents peace of mind as their child can always pay for a meal or a taxi in case of an emergency.
But before handing your child a credit card, you need to be assured that it won’t be used for purchases that you did not, or would not approve of. An expensive surprise is the last thing that parents want to see in their credit card’s monthly statement. Plus, high credit card balances can damage your credit score. ((You can see where your credit currently stands by viewing your Experian VantageScore 3.0 for free on Credit.com or signing up for ExtraCredit to see 28 of your FICO® scores.)
Teaching your Child to Use Credit Responsibly
Given the benefits and risks of credit card use, it’s not a good idea to just hand your child a credit card without teaching him or her how to use it responsibly. Instead, it’s important to take the time to slowly introduce your children to the concept of credit card use long before the receive one.
For example, you can start teaching your children from a very young age the basics of how credit cards work. Kids watch their parents use credit cards to make purchases, which can seem almost like magic. But children must also be taught that each charge must eventually be paid for using the money earned at work. Just as children watch their parents make purchases, it’s important to show them how you pay your credit card bills.
Later parents may wish to give their children a prepaid debit card or a gift card to use for specific purchases. You can load the card with money from your child’s allowance or savings, and give him or her some choice of how to spend it. (This can be a good plastic primer, but, be aware, prepaid debit cards and gift cards don’t build credit.)
Eventually, parents may want to order an additional credit card from their account for their child’s occasional use. For example, you can give your child the card to make a specific purchase, and ask for it back afterwards. You can even enter into an agreement that they can make charges of their own, so long as they notify you in advance, and pay you back from their savings or allowance.
The Bottomline: You can’t open a credit card account for your kid, but you can allow them to use a card that’s attached to your’s. By slowly introducing your children to the benefits and risks of credit card use, you can give them the purchasing power they need while teaching them valuable lessons at the same time.
DISCLAIMER. The information provided in this article does not, and is not intended to be, legal, financial or credit advice; instead, it is for general informational purposes only.