When I came across a 19-year-old kid with a huge credit score, I learned just how easy it is for parents to help their kid’s scores out with a big boost. But, even if you can give your kid a huge credit score, maybe you should think twice about it.
How parents can give their kids a huge credit score
I own a rental property in a college town, so I recently found myself running the credit score of a 19-year-old student who had applied to lease my place. When I checked his credit report, I was shocked because his credit score was 820, which is about 50 points higher than my score!
I thought there had to be some kind of mistake. The credit report was very simple, with only one entry on it. The only item on this young man’s report was a single credit card with a large credit line, a small balance, and a perfect record of on time payments for the last 17 years.
This guy seemed very mature, but I was pretty sure he wasn’t so mature he had his own credit card when he was two years old. I figured out immediately that his parents had made him an authorized signer on their card, which was giving him the huge score.
How being an authorized signer helps a credit score
The three biggest factors in determining a credit score are payment history, amount owed and the length of credit history. That means the ideal credit card to add to a credit report is an old card with no late payments and a small balance.
A card that you pay on time each month will have a great payment history, and will increase a credit score because it proves the cardholder is going to make his or her payment each month. A small balance shows that the cardholder isn’t in over their head with too much debt and will be able to handle the debt payments they have to make each month.
Credit reports look at the ratio of balances to the total amount available. That means that having a low balance combined with a large available balance will mean an even higher score.
An older card helps the credit score because it shows the cardholder is able to handle credit over the ups and downs people experience over a long period of time. Paying on time for a year or two makes you look dependable, but paying on time for 17 years in a row makes you look solid as a rock to potential lenders.
If you have a credit card that sounds like the one I described then you can make your child’s credit score sky high, too. All it takes is a call to your credit card company to ask them to add your child as an authorized signer.
Read more: How a penny a day can help keep poverty away
You can give your kid a huge credit score, but should you?
Before you give your kid a huge credit score, you should really think long and hard about whether or not you really should. There are a couple of risks involved, and not every kid can handle it.
The first potential problem with having your kid as an authorized user on your credit card is exactly that: Your kid will be an authorized user on your credit card! Teenagers in general don’t really have the reputation of being responsible, and the last thing you need is an irresponsible person running around with your credit card.
I know a guy who was given his father’s credit card when he went to school with the instructions that the card was only to be used in the case of an emergency. The first thing this guy did with his dad’s card was charge $5,000 at a plastic surgeon’s office to get his girlfriend breast implants.
So keep in mind that your teenager’s definition of the word “emergency” might be quite a bit different than yours and you might get stuck paying for things you don’t want to pay for. You can reduce your risk somewhat by not actually giving your kid the actual physical plastic credit card or even telling him about it. This plan isn’t foolproof though because sooner or later your kid is going to get his hands on a credit report and will be able to see the card there for himself.
The second reason you might want to think twice about helping your kid out with his or her credit score is maybe easy access to credit isn’t the best thing in the world for your teenager to have.
Remember after the financial crisis when everybody blamed the banks for making it too easy for people to borrow money? When you think about it, that is exactly what you are doing to your kid. With a high score, your kid can borrow a bunch of money. If they are responsible that might be a good thing. If they borrow too much money though and find themselves drowning in debt you certainly haven’t done them any favors.
So, the question of “should you?” really isn’t an easy one. Parents should trust only the most responsible teenagers with a big credit score, and even then maybe it isn’t as good of an idea as it seems. What do you think? Would you add your kid as an authorized signer to your cards?
For more money-saving info, see our Money section.