I am a newcomer to Canada. My family moved here in 2018 as permanent residents. Before this, we had spent two years in Toronto during 2014-2016. On both occasions, my husband was the one with a salaried job and I was a stay-at-home mom. Having worked for several years, I was used to a lot of if not complete financial independence. Thus, we jumped at the opportunity of me becoming an additional credit cardholder or authorized user linked to the primary credit cardholder’s account (i.e. my husband). For the entire span of two years, I used my card with great ease and convenience.
Cut forward to 2018, we move here and I try to get a phone connection in my name. My application is denied as I had no credit history. I tried to emphasize that I have always used credit cards in Canada and am surprised that my use (and timely payments) did not leave a credit footprint. That is the point when I started studying and researching the different types of credit cards and their corresponding impact on one’s credit history. So, it turns out additional cardholders or authorized users do not create a credit history.
Additional cardholders and authorized users
If you’re an additional cardholder or authorized user on a credit card, you get a credit card that is linked to the primary cardholder’s account. This card allows you to make purchases and use the account as the primary cardholder. Some credit card issuers will allow an authorized user to be under the age of majority. If you’re an additional cardholder, keep in mind:
- the credit card account belongs to the primary cardholder
- you may not be responsible for paying back any money owing on the credit card account
- any purchases you make using the card won't help you build your credit history.
I have now applied for and been issued a secured credit card from the bank where we have our savings and chequing account. I am a year away from hitting forty but my credit score and history are barely a year old.
Being a mother, I started thinking about creating a credit history for my kids. The minimum age to hold a credit card in your name in Canada is 18 years. But, if like me you are a parent who wants to set your kids up for success, you too would be interested in knowing what you can do to start a good credit history for your child.
Why Your Credit History is Important
Building a good credit history is important for your financial health. If you ever want to borrow money to purchase a house or car, a good credit score can mean the difference between your loan being approved or denied.
In today’s society it’s almost a certainty you’ll need to borrow money from lenders for major purchases like a house or car. Establishing a solid credit profile means you will have a better chance of being able to borrow money at the lowest interest rate.
Since I am not a financial planner or adviser, I have referred and referenced a large number of websites in this article. Hopefully, this article and the linked resources will help you when you are at the threshold to make a decision as a parent. If nothing else, you would become an informed parent who is aware of the options available to us in 2020.
Teaching Children About Credit and Savings
You may be teaching your children about money and budgeting, but are you teaching them about the importance of saving money and handling credit?
It can be tempting to try to prevent your kids from making money mistakes by keeping them away from credit cards – or by not discussing credit at all. But you may be missing an important teaching opportunity.
You can actually begin talking about credit fundamentals when your kids are quite young. As they get older, your explanations can become more detailed as they ar better able to grasp the nuances of credit reports, credit scores and identity theft.
As a young ten-year old, I remember being given an allowance (pocket money) during the Durga Puja festival (usually a five-day celebration) to spend as I deemed fit. Most of it would be gone within the first day or two. But that taught me budgeting and planning for all the five days of the festival as I knew my allowance was non negotiable and non renewable.
After conducting my research, I have been able to come up with a possible plan of action that would be easier to implement and also starts as soon as our kids are matured enough to understand money and its purchasing power.
Prepaid credit cards first
No matter the number of discussions we have with our teenagers, they are still kids with a lot of figuring out to do at that age. Hence, the safest way to introduce responsibility and accountability would be by giving them a prepared credit card. That way, even if they decide to splurge or make a bad decision, the damage is hedged beforehand by the limit set by you. A few pocket friendly prepaid credit card options are given below. Please compare and make an informed choice. Even we have one for our use in unfamiliar places like a random gas station purchase, or a small shop outside our neighborhood.
Authorized user
A possible next step would be to add them as an authorized user onto your existing credit card. Keep the credit limit low and increase it gradually as a reward for (demonstrated) responsible usage. Being an authorized user will give them the extended bandwidth to make purchase decisions, track spending v/s budget, and make payments in a timely manner. Since you would be the primary card holder, you would have the opportunity to keep a track of their credit card usage. One word of caution is that include your child as an authorized user only if you have a great credit history yourself and are being able to make your payments on time.
Student credit card
A student credit card is a credit card offered by a financial institution specifically for young people attending a post-secondary institution. There are many operators in this category and all the major banks come up with exciting offers to lure the young adults. I must add that this qualifies as a great high school graduation gift.
Start building your credit history fro the get-go with a student credit card
Student credit cards can be a great entrance into the world of credit. While paying on plastic gives a sense of financial freedom, this liberty comes with lots of responsibility. You’ll want to make sure that you’re able to pay off your balance in full each month, and one way to do this is to stick to a low monthly credit limit.
Secured credit card
For some reason if you or your kid end up with a bad credit score, the safest and surest way to gradually salvage your credit history would be by using more credit and making payments on time. Secured credit cards are excellent for building a good credit score and are often than not issued with simple paperwork. With steady and responsible use of a secured credit card it is possible to make a positive impact on your credit history.
What Is a Secured Credit Card?
A secured credit card is a type of credit card that is backed by a cash deposit from the cardholder. This deposit acts as collateral on the account, providing the card issuer with security in case the cardholder can't make payments. Secured credit cards are often issued to subprime borrowers or those with limited credit histories (so-called thin-file borrowers).
With standard reporting to credit reporting agencies, these cards can help borrowers improve their credit profile.
Hopefully this article will answer a few basic questions that you might have about credit history and its relevance. You might also find yourself intrigued and curious to find out more about these options. Either ways, I would consider that a success because I want all of us to catch that early train to our children's credit worthiness.