Authorized User: Five Reasons to Make Your Teen an Authorized Credit Card User
You may be a bit worried at the idea of making your teen an authorized credit card user on your account. It is a major responsibility. If you handle it correctly, it’s also an excellent opportunity for your teen to learn financial responsibility. Your child can learn early on personal financial responsibility as an authorized user.
How Your Teen Being an Authorized Credit Card User Works?
Most credit cards allow you add an authorized user and get an additional card for that person. The user’s card will have their name on it, and they can use it the same way you can use your card. Purchases they make will go on your account, and you will be entirely responsible for them.
According to Consumer Reports, Getting a card early has many benefits but comes with some risks as well.
With certain credit cards, you’re able to put a spending limit on the card of any authorized credit card user. This feature is most common among American Express cards. Although many business credit cards also offer it so business owners can put a limit on employee spending. A spending limit gives you peace of mind that your teen can’t run up a huge balance. However, it’s better to make sure that your teen understands how to spend responsibly.
Why should you set your teen up as an authorized credit card user? There are five benefits to making your teen an authorized user.
1. Your Teen Will Be Prepared for Emergencies
Let’s say that your teen’s car breaks down; they need to pay a tow truck driver or a repair company. If your teen has a credit card tied to your account, they can pay for the expenses without you finding a way to get them the money or driving out there yourself.
You never know when an emergency is going to strike. If it does, having a credit card could make it much easier for your teen.
2. Your Teen Can Build Credit
Even if your teen never needs to use the credit card, they’ll still benefit just by being an authorized user. Once your teen is on your account, the card issuer will likely report any activity on the card to their credit report. When you pay your bill on time and keep your credit utilization below 30 percent, this will establish credit history on your teen’s score, starting them off on the right foot.
Becoming an authorized credit card user is likely one of the few ways your teen could build up their credit score at this point. Was your teenager recently rejected for a student credit card? The Credit CARD Act of 2009 requires that adults under the age of 21 have either proof of income or a co-signer to obtain a credit card. When you make your teen an authorized user, they’ll build credit that they couldn’t have built on their own.
3. It Teaches Your Teen About Credit
Using credit responsibly has long been an issue for Americans, and not just young adults. The average family has thousands in credit card debt and ends up paying substantial interest charges. One big reason this happens is that people don’t get enough financial education.
Making your teen an authorized credit card user is one way to give them a first-hand lesson on how credit works. Explain how they can charge purchases to the card, but they’ll need to have enough money to pay off their purchases when the bill comes. If not, they’ll pay interest on it, and the purchase will end up costing them more.
Follow through with this and don’t bail your teen out. If they buy a $60 video game and only have $30 when the bill comes, leave it $30 short and let them pay any interest that accumulates. Once they pay more for a purchase just because they didn’t have the money for it right away, they’ll understand the dangers of interest.
4. Your Teen Will Learn How to Budget
When your teen realizes that they’ll need to pay interest for purchase they can’t cover on the due date, it motivates them to manage their money better. They’ll know that they can’t just spend whatever they want. They need to keep track of how much they have saved so they can pay off anything they charge.
This is a good time in your teen’s life to go over creating a budget with them. Their budget should include any income they have per month and their monthly expenses. The good news is that there are plenty of budgeting apps that your teen may like.
5. It’s Convenient and Safe
There are a couple of ways that making your teen an authorized credit card user is convenient and safe for both of you. Your teen won’t need to carry much cash around. If they lose their wallet, all they need to do is let you know right away, and you can get a replacement card, with the lost card being canceled so no one could use it.
A credit card bill is also an easy way for you and a teen to track their spending. You can see where your teen is spending their money. Your teen can evaluate their spending to see if they’re sticking to their budget.
Making Your Teen an Authorized User
Once you’ve decided to make your teen an authorized credit card user, you can usually set it up either online or over the phone. If possible, you should make them an authorized user on a credit card account that you rarely use. This makes it easier to track their spending and figure out how much they need to pay every month. If you aren’t putting any purchases on the card, then you know they’re responsible for all of it.
Talk to your teen about budgeting and responsible spending when you give them the card. Make sure that your teen realizes that they will be paying for their purchases. Of course, you can tell them that emergencies are an exception.
You may also want to set up spending alerts. The card issuer can send you these by email or text every time the card is used. Text will be more immediate, whereas emails are less intrusive on your day.
Your Child as an Authorized Credit Card User Helps Develop Responsible Spending Habits
The thought of your teen out there with total access to your credit card account can be nerve-wracking. But it’s a smart step to take by making your teenager an authorized user. You’ll be helping your teen build that ever-important credit score. Later your child may even qualify for college student credit on their own. Even more importantly, you’ll be helping them develop good financial habits. The right habits will ensure your teen becomes a responsible spender and avoids unnecessary debt in the future.