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If you're a teen and your parents have added you to one of their credit card accounts as an authorized user, consider this a big deal. You've officially entered the world of credit. Wondering what this means for you?
The only way someone under 18 can gain access to a credit card is for mom or dad to add them as an authorized user of a parent's existing account. As an authorized user, you'll be sent a credit card, printed with your name, that you can use to make purchases that will be charged to your parent's account.
You'll have the freedom of paying by credit card wherever you shop, dine or hang out. But don't go crazy. Every purchase will be listed on your parent's credit card statement, and somebody's got to pay that bill each month.
Whether or not you pay for all or some of the purchases that you make is between you and your parents. Legally, it is your parent, not you, who is responsible for the bill, so they are going to be very serious about monitoring the account and making sure you pay your fair share, and do so on time.
As an authorized user, there's a good chance that you will get a credit boost from your parent's credit history, because the credit card account will be listed on your credit report, as well as your parent's.
But keep in mind not all credit card issuers report authorized users to credit reporting agencies. And if an issuer doesn't report this information, the account won't show up on your credit report. So if you are looking to establish credit and not just make purchases as an authorized user, ask your parent or guardian to double-check with the credit card issuer about reporting authorized users to the credit reporting agencies.
Because it is likely that your spending as an authorized user will affect your parent's credit and your own fledgling credit history it is important to manage the account with care.
Be honest and open about spending. Avoid surprises. And be aware of a card's credit limit before charging. Using another person's credit account is a privilege and a large unexpected bill could hurt your parent's finances and their credit score if they are unable to pay down the bill in a timely manner.
Making and paying off your share of purchases on a credit card account is good practice for managing your own credit card account one day.
The trick to building credit is simple. Pay your bills on time, charge only what you can afford, and if you do carry a balance keep it small and well below your credit limit. Making small purchases each month with a credit card and paying the amount in full each month is an easy and effective way to build a good credit history and a good credit score.
And if you have plans of buying a house or car one day, your credit score and how you manage your credit cards will matter when it comes time to apply for a loan. Employers, landlords and even cell phone companies check credit records as well. The smarter you are about managing your credit early on, the better off you'll be.
So use your credit cards wisely. And thank your parents for getting your credit started as an authorized user.