Dear Opening Credits,
My wife and I recentlyhad our first child. In today's world, your credit score plays a large impactin insurance rates, borrowing ability, etc. Because of this I would like tostart establishing credit history for our child. If I add my child as anauthorized user to our credit card accounts, will this begin a credit historyfor him to where he will start out at a higher level and be able to takeadvantage of better opportunities? Or will this do absolutely nothing for him? -- M.W.
Dear M.W.,
Please tell me you'rejoking. You don't really want your infant to be an authorized user on your credit card account, right? Where, pray tell, would heeven keep the card -- tucked into his diapers? Perhaps use it as a teethinginstrument? I'm guessing you won't actually give the kid the card, but I think youmay be jumping the gun a bit here.
So, assuming yourquestions are genuine, here are your answers.
Yes, a good credit reportthat translates into a high credit score is important for most adults living inthis country. It serves a specific purpose. Many businesses rely on theinformation contained in the reports and the scores that are generated fromthem to make the most accurate and objective lending decisions possible.
Among those pulling thereports and scores are insurance companies, lenders, some employers andlandlords. In general, what these businesses are looking for is what kind ofborrower you have been in the past. With that information, they can predictwhat kind of risk you might be in the future. If your reports show a longpattern of excellent credit management, your credit rating will be high. Thiscan give you an edge on jobs and rentals, and preferable terms on credit,mortgage and insurance products.
So given the advantagesof having an established credit history, I can see why you'd want your childrento jump into the pool early. While other young adults are dog-paddling, youroffspring will be Olympic-level backstrokers, right?
Hold off. Even thoughsome credit issuers do not have a minimum age requirement for authorized users,I would recommend letting another person share your account only when they areold enough -- chronologically, emotionally and intellectually -- to handle theresponsibilities that come with plastic.Plus, if for some reason you and or your wife's credit heads south, your bad behavior will cause the authorized user's score to fall , bringing down baby's credit with yours.
Once your children growinto teenagers, however, I think it would be fine for you add them to youraccount as authorized users under certain conditions:
1. You'veexplained precisely how credit works. Cover interest rates , why keeping debt down is important, creditsecurity and the role of credit reports and scores.
2. You give themspending guidelines. Explain what they can usethe card for and the amount they can charge.
3. Youkeep close tabs on their charging activity. Read over card statements and credit reports with your kids. So you'realways aware of the balance, make it a rule for them to contact you before andafter charging, and set up text alerts -- if available from your card issuer -- toget up-to-date charging activity sent to your cellphones.
4. Theyunderstand and accept what will happen if they abuse their privileges. What are the consequences of not followingyour rules? Make them clear and put them in writing. For example, if you expectthem to reimburse you for charges within 30 days and they don't, you willremove them from the account immediately.
As for you, know thatwhat they do with the cards could affect your credit history as well as theirs.Authorized users enjoy charging privileges, but the card issuer can't turn tothem for payment. For these reasons, adding anyone to your account is notchild's play.
One other option: You canadd your teenager as an authorized user to your card account and never give himthe card to use. That way you don't have to worry about your child succumbingto temptation and pulling out the card to buy the latest video game or Xbox.
Another thought about addingan infant as an authorized user on a parent's card account -- you might beopening the door for your child to become a victim of identity theft. Thesooner you create a credit file on someone, the more opportunities there arefor a family member or complete stranger to hijack that person's creditidentity.
So while your concernsare somewhat valid, I say hold off another 15 years before adding your child toany of your credit accounts.
See related: What authorized users can and can't do with your credit card , Act fast to remove authorized users when your credit goes bad , How to remove an authorized user from a credit card account
Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco's KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.
Send your question to Erica .
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