When Should I Kick My Kid Off My Credit Card?

The springtime graduations going on now are full of celebrations of new beginnings and growing independence. When these emerging adults walk across the stage in their caps and gowns, should your credit cards still be in their wallets?

Well…maybe. For most grads, it’s not as if they were issued a new job with the diploma. Some will move back home to save money after college; others will leave for the grand adventure all those graduation speakers talk about.

If your kid is an authorized user on your credit card, the advantages of letting them keep the cards include:

Having access to what is probably a higher credit limit than they could get on their own, which could be valuable in an emergency. (It might help moms and dads sleep better at night.)
A bit of a boost in their credit scores, assuming you keep the card balance low and pay it off promptly.
You can avoid the awkward conversation of asking for the card back. (Although, financial coach Gail Perry-Mason has a solution for that: Make it a celebration.)

But there are disadvantages, as well:

If you fall behind on payments or run up a high balance on the card, it will drag their scores down, too.
Having access to your line of credit could make them less inclined to apply for one of their own, especially if the arrangement has worked for quite some time. Establishing their own credit is likely to become important at some point. And while authorized user accounts help to establish credit, a primary account carries more weight.
In telling them to go ahead and keep it, you may be sending a message that you are not wholly confident they can make it without your help. Or maybe you aren’t ready to let them go it alone.

There’s not a one-size-fits-all decision.

“From a scoring perspective, the only reason to remove an authorized user, since that person’s other credit doesn’t impact yours, would be to prevent that person from making any further charges on the card,” says credit score expert Barry Paperno. But from a parenting perspective? That’s a tougher question.

How Parents Can Help

Happily, with authorized users, there may be a way to have it both ways. Let’s say your adult child has his or her own credit card, and it has a limit of $1,000. His or her credit score could suffer if the balance went past $300, which would be using 30% of the available credit. And for optimum credit, it would be better to keep the balance below 10%. That’s just $100. A pair of concert tickets could cost that. Add to that a few dinners out and some new shoes, and the balance could easily hit $500. Even if your son or daughter pays the bill the day it arrives, he or she could lose credit score points for having a high credit utilization rate. (A good strategy to keep the balance low would be to pay the balance online shortly after a charge is made, Paperno said.)

But let’s say you have a credit limit of $10,000 on a card for which your child is an authorized user. Now, a $500 balance is $500 used of $11,000 in total available credit. Or at least that’s how some credit scoring models will look at it. “The score looks at utilization both on an individual card basis, i.e. what proportion of all cards are more than X%, Y%, etc., and on an overall basis, i.e. total balances/total limits,” Paperno said in an email.

The trick is to help your adult child maintain a high credit score. If their habits are good — they’re charging only what they can afford to repay, and they are paying on time — you may want to give them the benefit of your higher credit limit. And you can do it without giving them a physical card. All you have to do is make them an authorized user.

Finally, parents should remind young adults to check their credit reports and scores. You can get a free credit report every year from each of the three major credit reporting bureaus, and you can get two of your credit scores for free with a Credit.com account. Before your new grad goes out to lease an apartment or apply for a job, make sure the information (potential landlords and employers will likely check) is accurate.

Remember teaching them to ride a bike? That exhilarating moment when you took your hands off and watched them do what they couldn’t do 30 seconds before? It works like that. Sometimes a new competence surprises you both. But you have to let go. Think of the authorized user account as the hands that steadied the bike — until your child pedaled away proudly and independently.