Why Now Is the Time to Make Your High School Graduate an Authorized User on Your Credit Card

There's a shadow of time between childhood and adulthood when financial lessons become vitally important. Now that your child is graduating high school, consider adding their name as an authorized user on one of your credit cards. Before rejecting the idea outright, consider these reasons. It just may benefit you both.

What is an authorized user?

First things first. Let's talk about what an authorized user on your credit card can and cannot do. An authorized user is someone you add to your credit card account. They can make charges to the card but have no responsibility to make payments. They also have access to most of the credit card's benefits. This includes perks like rental car protection, purchase protection, and airport lounge access.

As an authorized user, your child will receive a credit card of their own, but that doesn't mean they have all the same privileges as you as the primary account holder. Usually, an authorized user can't request a credit line increase, redeem rewards, or add someone else as an authorized user.

Depending on the credit card issuer, they can obtain a copy of the account balance, request statements, and make payments. If that's something you would prefer they not do, contact your credit card company to learn more about its policy before adding an authorized user.

Another essential thing to remember is that you can remove the authorized user's name from the account anytime. You can always call it quits if it's not working the way you hoped.

In the meantime, here are some of the benefits you (and your authorized user) may enjoy.

Peace of mind for you

Whether your child is going into a trade, attending community college while they work, or heading off to university, there will be times you worry about them. This is particularly true if they leave home and run into an emergency you can't immediately respond to.

You set up the parameters of the card. For example, you may tell your child they can only use the card in the event of a bona fide emergency. You may allow them to use the card to cover specific purchases, like textbooks. Or, you may tell them that the card should never be used at all. The next point will explain how the authorized user will benefit from the card, even if they're never allowed to use it.

It helps them build a credit history

Bad credit can prevent a person from scoring a low interest rate on a loan, landing inexpensive auto insurance, renting an apartment, or even getting a job. Equally alarming is credit invisibility. A person is considered "credit invisible" when they have no credit history that can be reported to the three national credit bureaus. According to Experian, 28 million Americans are credit invisible. And without a credit history from which to draw, credit bureaus cannot assign the FICO® Score most lenders depend on to make lending decisions.

Even if your child never pulls out the credit card, they receive credit every time you make an on-time payment on the card. That means the credit card issuer sends a report to the credit bureau in each of your names, giving you both credit for the payment.

They can practice using the credit card in a responsible way

Depending on the limits you set, the authorized user on your credit card will learn to use credit responsibly. That may mean making small purchases and paying them off in full before the end of the credit cycle. It may mean having the discipline to carry a card without using it. It's up to you. You serve as the guardrails.

As mentioned, if you decide it's not working out, you can remove their name from the account without damaging their credit score.

By the time your graduate is a full-fledged adult, they'll have experience managing a credit card -- even if it was in a limited capacity. Ideally, they will have learned at least two lessons as a first-time credit card user:

• The discipline required to use a credit card only in an emergency or when they can afford to pay it off in full.
• The importance of positive monthly reports to the credit bureaus.

Adding your teen as an authorized user may sound like a scary proposition, but if you can trust that they will follow your guidelines and use the credit card responsibly, it can lead to a great outcome.