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.
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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