Should You Add Your Child as an Authorized User on Your Credit Card?

Social media has a very bad habit of passing on to the masses, half truths and straight up lies. The ease in which things like memes and photos with false and/or misleading information can spread is downright terrifying.

That is why I tend to fact check darn near everything I see. The following meme has been going viral throughout the country in the last few weeks, but I've personally seen it shared a quite a few times by family members and friends in and around the Cowboy State. It has a few different iterations, by they all pretty much read as follows:

If you have a credit card and a kid, add your kid as an authorized user and pay the bill on time. By the time that kid hits 18 years old, boom, 800+ credit score for the kid to succeed in this world. Schools aren't teaching this. It's up to us.

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First and foremost, the different versions of the meme I've seen, doesn't have the best examples of correct English wording (if you want people to take it seriously, you should probably not use the word "ain't"), but ultimately, that's not the point.

So I did my research. The American business magazine, Forbes, posted a list of six pros and six cons to adding your children as authorized users.

6 Reasons to Add Your Kids as Authorized Users:

1. Teach financial responsibility. A credit card is a useful tool to help teach your children financial responsibility. Authorized users are allowed to make charges to the primary cardholder’s credit card. This can teach young people to pay off charges each month without incurring interest if managed properly with oversight from a parent or guardian.
2. Give your child independence. Giving your child his or her own credit card allows spending independence. Instead of asking you for money every time they want to spend money, they can use the credit card to make the purchase. The obvious disadvantage here is that you lose control of their spending, too.
3. Encourage conversations about money. Handing your kid a credit card isn’t the end of your money lesson—it’s the beginning. Parents should have regular conversations with kids about credit card habits. Print out the statement each month and walk through the transactions. Don’t just talk—also listen to what they have to say and encourage them to ask questions.
4. Build their credit history. As an authorized user, your credit card will build your kids’ credit history. The credit card usage and payment history will be added to their credit profile. This will help them when it comes time to apply for their own credit card or other types of credit.
5. Earn rewards for their spending. If you have a rewards credit card, every time your child makes a purchase, you’ll earn rewards. Although these purchases may be small, the rewards add up over time. Some credit cards offer benefits at certain spending levels, which means that their purchases also get you closer to meeting those hurdles.
6. Authorized users receive benefits. Some credit cards with cardholder benefits extend some of those benefits to authorized users. These benefits could include airport lounge access, rental car protection and free checked bags.

6 Reasons Not to Add Your Kids as Authorized Users:

1. You’re on the hook for their spending. As the primary cardholder, you’re responsible for all of the purchases any authorized users make. It’s important to stress to children before handing them the credit card the responsibilities included with credit card spending power.
2. They may have access to your entire credit limit. For most credit cards, authorized users can spend up to the main card’s maximum credit limit (or potentially higher).
3. It can be hard to tell who is spending what. It may be hard to differentiate your kids’ spending from yours since most banks give authorized users the same credit card number as the primary cardholder.
4. Their spending could affect your credit score. Credit utilization makes up 30% of a credit score. If your children spend a lot on your credit card, your utilization could increase and reduce your credit score. This could have personal consequences when applying for a loan or refinancing a home.
5. Some credit cards charge fees for authorized users. Not all authorized user credit cards can be added without additional cost. Premium credit cards may charge a fee for authorized users.
6. Your credit activity could hurt them. Adding children as authorized users could hurt them if the primary cardholder’s finances sour. A late payment, charge-off or bankruptcy could place a negative mark on any authorized users’ credit.

There is also another hurdle, which is probably the most important. The ability to add a child as an authorized users depends on age and the bank or credit union's rules. While children that are 18 and older can be added easily, some financial institutions may not allow children under a certain age to be added as authorized users.

I'd highly recommend weighing in all of the pros and cons prior to adding a child. It's a huge decision after all with some pretty major credit ramifications for both you and your child.