Dear Penny: Will Making My Daughter an Authorized User Help Her Credit?

A mother and daughter talk by a river.
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Dear Penny,

I’m trying to get a student credit card for my 19-year-old daughter or a credit card with a limit I can control. She was denied because she has no credit. If I add her as an authorized card user with my credit cards, will they report to all credit bureaus on her behalf so she can start to build credit?

-E.

Dear E.,

Back in my college days, banks set up tables on campus and plied us with free pizza and T-shirts to entice us to apply for credit cards. But those days are long gone. 

That’s because the Credit Card Accountability, Responsibility and Disclosure Act of 2009, aka the CARD Act, banned credit card issuers from college campuses and made it a lot harder for people under 21 to get credit cards.

It’s a good thing in that it makes it harder for students to add credit card debt to all that student loan debt they can’t afford. But it also makes it harder to establish your credit footprint, as you and your daughter are experiencing firsthand.

Adding a child as an authorized user, which means they’re allowed to use your credit card but aren’t responsible for the payments, can help them establish a credit footprint — but only if the card issuer reports authorized user activity to the credit bureaus. You’ll need to check with your credit card company about whether it does. 

But even if the company reports her authorized user status to the bureaus, it probably won’t make a huge difference in terms of actually getting approved for credit and loans in the future.

There are dozens of credit scoring models out there that try to predict your risk based on the type of credit you’re seeking. So, for example, if you apply for a car loan, the score they’ll use to approve or deny you will probably be different from the one that would be used if you applied for a credit card. 

A lot of scoring models won’t weight authorized user history very heavily because lenders know that authorized users aren’t on the hook for payments or managing credit responsibly. What authorized user status typically tells them is that you had a parent who was willing to help you build credit.

Still, I do think it would be wise to add your daughter as an authorized user, provided that you’ve set ground rules for how she can use the card. Anything that can establish a positive credit history is better than having no credit history.

Another possibility is for you to be a co-signer on a credit card that’s in your daughter’s name. Many major banks have moved away from extending credit to people who need a co-signer, but this may be an option at a local bank or credit union.

But ultimately, to build good credit, your daughter will need to prove herself creditworthy on her own. That means having verifiable income to prove she can afford to pay for credit card purchases. So if she doesn’t work already, getting a part-time job could help.

Once she has income, she should look for credit cards that are specifically marketed as starter cards. You’ll typically get a line of credit of just $200 or $300 that will increase as you show your creditworthiness — or at least give you the credit history you need to get approved for more credit.

You won’t be able to control the limits, of course. Your daughter is an adult, and these will be her accounts, after all.

What you can do, though, is educate her about credit. For example, most people know that late payments will hurt you, but another thing someone establishing credit needs to be aware of is credit utilization, which is the percentage of overall credit someone uses. You want this number to be 30% or lower, though 0% is ideal. But starter credit cards have such low limits that even a small purchase can push this figure well beyond that 30%.

You can check in with your daughter about how she’s managing her money and her credit. You may even be able to give her a boost to establish a credit history. But ultimately, proving creditworthiness will be in her hands.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your tricky money questions to [email protected]