How Some in Gen Z Enter Adulthood With High Credit Scores
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What is the main topic discussed in this episode?
and how they may affect your finances and portfolio. Listen at schwab.com slash Washington Wise.
Here's your Money Briefing for Tuesday, July 23rd. I'm J.R. Whelan for The Wall Street Journal. Members of Gen Z are more likely to have enlisted as authorized users on their parents' credit cards. And in many cases, that's given them a head start in tackling some of the financial responsibilities of adulthood.
Let's say a kid is signed up as an authorized user at 13. If that parent never misses a payment on their account and they keep the utilization low, that kid could have over 10 years of good credit history by the time they graduate college.
We'll talk to Wall Street Journal personal finance reporter Oyin Adedoyin after the break.
How common is adding Gen Z as authorized users on parents’ credit cards?
Listen at schwab.com slash washingtonwise.
More parents are adding their children to their credit card accounts. Wall Street Journal personal finance reporter Oyin Adedoyin joins me. Oyin, why are parents doing this?
They're basically adding their children as authorized users on credit cards that they already have. And so this enables them to, in some cases, receive a separate card with their child's name on it that they can choose to either give to them or hold on to while they build their credit. This is something that's really becoming a lot more common. More than 690,000 22 to 24-year-olds had an authorized user card attached to their file last year. That's compared with 285,000 consumers who were the same age a decade ago. And that's data from TransUnion.
At what age are they first getting access to credit?
Well, interestingly, it depends on the credit card issuer. Some issuers and banks don't have an age limit. So you can sign your kid up for an authorized user card as early as... There's no age limit?
What ages can children be added as authorized users and do banks set limits?
No age limit. So you can pick what year you want to sign that kid up.
Three, four, five years old?
Some parents have done it. Other cards have an age limit, and that can range anywhere from 13 years old to 16 years old. Most banks don't report the information of an authorized user to credit bureaus until that kid is 18.
Why are parents enrolling their teens now as authorized users instead of them applying later when they might have a more steady income?
Parents are really doing this for kids to give them a head start in their credit history. So let's say a kid is signed up as an authorized user at 13. If that parent never misses a payment on their account and they keep the utilization low, that kid could have over 10 years of good credit history by the time they graduate college. And that's going to help them get more credit card accounts with higher limits and other rewards and other perks.
So the parent's credit profile is important here.
Why are parents enrolling teens early instead of waiting for steady income?
Yes, exactly. The kid gets to essentially piggyback off of the parent's credit.
That's pretty good for them to burst onto the scene when they're 18 and have a fully established credit profile.
That's why a lot of parents are doing it. Part of the reason is, of course, to also have some kind of emergency spending for kids. But the other added benefit is by the time they're old enough to establish their own accounts, they've got a little bit of a head start in that way.
What if the parent's credit score is low or they're struggling to keep it up?
So that's the other side of things. And a lot of credit counselors worry about this when it comes to authorized users. Just as a parent's good credit can help their kid, a parent's bad credit could negatively affect their kid's credit score. Let's say a parent starts out with good credit, but then they have a series of missed payments and maybe their utilization increases for some reason, maybe expenses start to increase. That could ding their kid's credit score as well.
If that happens, could the teen request to be taken off the authorized user list?
Yes, they could. They could call their bank and see if they could remove themselves as an authorized user in that case.
You know, having a credit card as a teen might give them a financial head start, but are there risks to a young person having the ability to make purchases just by pulling plastic out of their wallet and somebody else paying the bill?
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:01–1:20
2
How common is adding Gen Z as authorized users on parents’ credit cards?
1:20–2:51
3
What ages can children be added as authorized users and do banks set limits?
2:51–3:50
4
Why are parents enrolling teens early instead of waiting for steady income?
3:50–5:54
5
How can a parent's good or bad credit affect an authorized user's score?
5:54–8:37
6
What are the risks of teens having access to a parent's credit card?
8:37–8:51
Speakers
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